The liquidity shortage in the banking system has breached the Rs 3 lakh crore mark, the highest since at least 2010. 

The system’s shortage, reflected by banks’ borrowing from the Reserve Bank of India (RBI), shot up to nearly Rs 3.16 lakh crore on 23 January, as per data from the central bank. 

The squeeze in recent weeks is caused by RBI’s persistent dollar sales to protect the rupee as well as seasonal drivers such as tax outflows, economists said. When the central bank intervenes in the market by selling dollars, it absorbs rupee liquidity. 

The rupee has particularly come under pressure  after Donald Trump was voted to power in the US . The Indian currency has reacted to the high import tariff Trump may impose, the trade policies he may follow and his focus on ‘America First’. Foreign institutional investors (FIIs) have also been pulling out of the Indian market.

The RBI has announced daily variable repo rate (VRR) auctions to support banks who are facing cash crunch.

On 15 January, the RBI said it will conduct VRR auctions on all working days with the reversal taking place on the next working day.

The daily VRR conducted by the RBI on Friday received bids worth Rs 2.22 lakh crore against the notified amount of Rs 2 lakh crore. 

The RBI also conducted a 14-day VRR auction on the same day to infuse Rs 1.75 lakh crore worth liquidity into the banking system. Against this notified amount, it received bids worth Rs 1.62 lakh crore from banks.