RBI injects Rs 75,000 crore before GST, advance tax payments

The Reserve Bank of India (RBI) on Friday infused Rs 75,000 crore into the banking system through Variable Rate Repo (VRR) auction, aiming to provide funds to the banks ahead of advance tax and Goods and Services Tax (GST) payments which will drain out liquidity from the system. Advance tax and GST payments are expected to drain out nearly Rs 2.5 trillion from the banking system.

“Liquidity may turn into a deficit mode next week, as close to Rs 2.5 trillion is estimated to flow out of the banking system due to advanced tax and GST payments. With today’s (Friday) VRR auction, the RBI wants to ensure that the banking system has enough liquidity,” treasury head of a public sector bank told FE. “We may see another VRR auction from the central bank next week,” he added.

GST payments are estimated to be around Rs 1.5 trillion while advance tax payments are estimated to be around Rs 1 trillion. The advance tax payment was due on March 15, and GST payments are due on March 20.

The seven-day VRR auction held on Friday received bids worth Rs 76,560 crore from the banks. The central bank accepted bids at 6.52% which is lower than marginal standing facility rate of 6.75%. Banks can obtain liquidity overnight through RBI’s marginal standing facility when interbank liquidity dries up. A repo auction is conducted by the central bank to inject liquidity into the banking system.

Read more at: FINANCIAL EXPRESS