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Liquidity infusion by central bank to provide breather for banks aiding margins

ICICIdirect Research 14 Feb 2025 DISCLAIMER

Reserve Bank of India intensified efforts to address a persistent liquidity deficit of around ₹2 lakh crore, attributed to tax outflows, reduced government spending and forex market interventions.
Thus, the central bank doubled its Open Market Operations (OMO) purchase to ₹40,000 crore, to inject liquidity into the banking system. Additionally, it conducted a 49-day Variable Rate Repo (VRR) auction, offering ₹75,000 crore to banks, and announced an overnight VRR auction of ₹2.75 lakh crore, marking the largest such operation in recent times.

Liquidity infusion, amid challenge faced by lenders on liabilities accretion, is expected to act as a much-needed breather and will provide cushion in interest reversal cycle. Though, we still continue to expect some pressure on margins in coming quarters, owing to slippages from unsecured exposure, moderating proportion of low cost deposits and continued offering of elevated rates on deposits, liquidity infusion will provide cushion by moderating the intensity of pressure on margins for lenders.

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