CURRENT AFFAIRS : BANKING & FINANCE
India Records Near 5-Year High Banking Liquidity Deficit
- India’s banking system liquidity deficit has widened to the highest in nearly 5 years on monthly goods and services tax payments.
- The liquidity deficit is the amount of funds banks need to borrow from the interbank market or from the central bank.
What is banking system liquidity?
- Liquidity in the banking system refers to readily available cash that banks need to meet short-term business and financial needs.
- According to the Reserve Bank of India (RBI), the liquidity deficit stood at Rs 1.74 lakh crore ($20.90 billion).
- It is highest since 2018, when it had hit Rs 1.86 lakh crore.
- On a given day, if the banking system is a net borrower from the RBI under Liquidity Adjustment Facility (LAF), the system liquidity can be said to be in deficit.
- LAF refers to the RBI’s operations through which it injects or absorbs liquidity into or from the banking system.
- If the banking system is a net lender to the RBI, the system liquidity can be said to be in surplus.
