RBI mops up surplus cash as money market liquidity tops Rs 11 lakh crore

Surplus liquidity in India's money market has crossed Rs 11 lakh crore, prompting the Reserve Bank of India to aggressively mop up excess cash from banks' $136 billion foreign-currency deposit mobilisation to prevent short-term rates from falling too far below its policy rate. RBI has absorbed over Rs 4.6 lakh crore through 30-day variable-rate reverse repos and Rs 6.6 lakh crore via overnight repos and standing deposit facility operations, while also using dollar-rupee buy-sell swaps to drain liquidity. The deluge stems from a concessional swap window that attracted $136.4 billion in inflows, including $127.2 billion through FCNR(B) deposits, with banks swapping dollars for rupees and releasing large domestic liquidity. The weighted average call rate has slipped to 4.96%, below RBI's policy repo rate, while longer-duration yields have hardened. Axis Bank's CEO warned of potential "abnormal lending," though SBI's chairman expects absorption within a quarter. Inflows accelerated in August as banks offered higher rates to non-resident depositors, with daily average surplus tripling to Rs 3.67 lakh crore.