Liquidity Watch: RBI Absorbs ₹3.74 Lakh Cr as Banks Tap MSF Amid Tight Conditions

India’s money markets on July 3, 2025, reflected a tightening liquidity environment, with the Reserve Bank of India (RBI) actively managing short-term imbalances through its standing facilities. The central bank’s operations revealed a significant net absorption of funds, even as banks leaned on the Marginal Standing Facility (MSF) to bridge overnight gaps.

Key Highlights:

Banks’ Cash Balances: Scheduled commercial banks held ₹9.57 trillion with the RBI, indicating a cautious liquidity stance amid fiscal outflows and muted deposit growth.

Government Surplus Cash: The Centre’s surplus cash balance with the RBI was nil, suggesting active fiscal deployment or pre-auction fund utilization.

 

Refinance Support: The RBI extended ₹62.17 billion in refinance, likely through sector-specific liquidity windows or standing liquidity facilities.

MSF Borrowings: Banks borrowed ₹11.11 billion via the MSF window, reflecting short-term liquidity stress, possibly due to GST-related outflows or quarter-start funding mismatches.

Liquidity Adjustment Facility (LAF):

Standing Deposit Facility (SDF): RBI absorbed ₹2.99 lakh crore at 5.25%.

MSF Injection: Injected ₹3,410 crore at 5.75%.

Net Liquidity Absorption: Stood at ₹3.74 lakh crore, underscoring a system-wide surplus being sterilized by the central bank.

Cash Reserve Position: Banks maintained ₹9.64 trillion with the RBI, exceeding the fortnightly average requirement of ₹9.52 trillion.

 

The RBI’s calibrated liquidity operations signal a balancing act—absorbing excess funds while ensuring banks can meet short-term obligations without market disruption.

 

Source: Reserve Bank of India, Reuters, Economic Times Markets