look news india
Mumbai: The liquidity crunch in India’s banking system reached its highest level in six months on Monday. Liquidity is believed to have been withdrawn from the financial system as a result of advance tax payments by companies and possible sales of dollars by the Reserve Bank.
To prevent the fall in the value of rupee against the dollar, the Reserve Bank has been continuously selling dollars since October of the current year. Reserve Bank sources said the cash deficit in the banking system stood at Rs 1.50 trillion on Monday, the highest since June this year.
Liquidity has also reduced due to the sale of dollars by the Reserve Bank. Sources also said that in view of the possibility of further decline in the rupee due to increase in the country’s trade deficit, it would not be surprising if the Reserve Bank intervenes further in the currency market.
Despite the recent reduction in cash reserve ratio, banks are facing liquidity stress.
Since companies have to make advance tax payments in the last month of every quarter, liquidity in the banking system reduces during this period. Apart from this, increased cash withdrawal from banks due to the festive season has also affected liquidity.
