Cash Still King, But Borrowing Takes a Break: RBI’s Sept 14 Snapshot

India’s central bank released its latest liquidity snapshot, revealing a slight decline in commercial banks’ cash balances and a notable drop in borrowing under the Marginal Standing Facility (MSF) on September 14, 2025. According to the Reserve Bank of India (RBI), banks held ₹9.11 trillion in cash reserves on September 14, down from ₹9.16 trillion the previous day. Meanwhile, MSF borrowings fell sharply to ₹1.76 billion from ₹9.69 billion on September 13.

 

These figures offer a real-time glimpse into the liquidity dynamics of India’s banking system, reflecting both short-term funding needs and broader monetary conditions. The MSF, a key emergency borrowing window for banks, is often used to meet overnight liquidity mismatches. A decline in MSF usage typically signals improved liquidity conditions or reduced funding stress.

 

Day-to-Day Liquidity Trends

The ₹50 billion dip in cash balances between September 13 and 14 suggests a modest outflow of liquidity from the banking system. While not alarming, such fluctuations are closely monitored by market participants, especially in the context of upcoming tax outflows, government borrowing schedules, and central bank operations.

 

The sharp drop in MSF borrowings—from ₹9.69 billion to ₹1.76 billion—indicates that banks were less reliant on RBI’s emergency window on September 14. This could be due to:

The MSF rate currently stands at 6.75%, making it a relatively expensive option compared to other short-term borrowing avenues. Banks typically tap MSF only when other sources—like call money or repo markets—are constrained.

 

Understanding MSF and Cash Balances

The Marginal Standing Facility is part of the RBI’s Liquidity Adjustment Facility (LAF) framework. It allows scheduled commercial banks to borrow overnight funds up to 1% of their net demand and time liabilities (NDTL) against approved government securities. MSF is designed to provide a safety valve for banks facing unexpected liquidity shortfalls.

 

Cash balances, on the other hand, represent the reserves banks maintain with the RBI to meet statutory requirements and operational needs. These balances fluctuate daily based on:

A healthy cash balance indicates that banks have sufficient liquidity to meet obligations and extend credit. However, excessive reserves may also suggest underutilization of funds or cautious lending behavior.

 

RBI’s Role in Liquidity Management

The RBI actively manages systemic liquidity through a combination of tools:

By monitoring MSF usage and cash balances, the central bank gauges the stress levels in the banking system and calibrates its interventions accordingly. A spike in MSF borrowings often prompts the RBI to inject liquidity, while surplus reserves may lead to absorption measures.

 

In recent months, the RBI has maintained a balanced liquidity stance, aiming to support growth while keeping inflation in check. The central bank’s monetary policy committee (MPC) has held the repo rate steady at 6.50%, signaling a wait-and-watch approach amid global uncertainties.

 

What to Watch Next

Market participants will be closely tracking:

With India’s economy showing signs of resilience and inflation moderating, liquidity management remains a critical lever for sustaining momentum without overheating the system.

 

Sources: Money Market Operations, RBI Press Releases