The year-long grouse of NBFCs, mutual funds and India Inc that liquidity is too tight no longer holds. This is largely because the government has begun spending. Also, bond dealers say June, July and August are months when cash withdrawals fall and liquidity returns to banks.
More importantly, about one lakh crore of old bonds are due for redemption in June and July.
Several positive factors are aligning to make liquidity comfortable for the next three months at least and it is only during the festival season in September-October that people start withdrawing cash.
As per the RBI data, the amount of government balances, which used to be Rs 69,000-70,000 crore in April-May, today reads zero, which means the government has started spending the money and that is now coming into the banking system.
Moreover, the data shows that banks that were borrowing to the tune Rs 50,000 to Rs 1,00,000 crore from the RBI through last many months are now giving the excess money to the RBI.
The data also shows that yesterday, the RBI absorbed Rs 86,000 crore from the banking system, while up until May it was actually lending to the banks. This is clear proof that liquidity has returned. The OMOs and forex swaps done by RBI are also now taking effect.
Historically as well, June, July, August are months when cash returns to the banking system and not many withdrawals take place. So, the liquidity situation is likely to only get better.
However, there could be some liquidity tightening when companies pay advance taxes in Mid-June but that would be a temporary problem.