By Pratigya Vajpayee | Updated on Oct 09, 2026 at 02:54 PM
India’s central bank stepped up its efforts to drain surplus banking liquidity, announcing a fresh bond sale and requiring lenders to keep more of their mandated cash buffers with it on a daily basis.
The Reserve Bank of India will sell 250 billion rupees ($2.6 billion) worth of six bonds maturing over the next four to eight years on Monday, it said in a statement Friday. Separately, it directed banks to maintain at least 99% of their required cash reserves with the central bank each day during a fortnight, up from 90% currently. The changes take effect Oct. 16.
These measures come after Governor Sanjay Malhotra earlier this week pledged to use a range of liquidity tools to keep overnight borrowing costs closely aligned with the policy rate.
The RBI has been aggressively reducing surplus after its recent program to attract foreign-currency deposits from overseas Indians brought in larger-than-expected flows, flooding the banking system with cash and threatening to fuel inflation. Last month, the central bank carried out 1 trillion rupees of such sales in three tranches. In addition, the RBI has been draining the excess through foreign exchange swaps, while also relying on temporary cash withdrawals.
The extra debt supply has weighed on the market as the government’s borrowing is set to hit a record high this year.
The bond sale is likely to push yields higher by about five basis points on Monday as the market will expect the central bank to announce another round soon, according to Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership Ltd.
The increase in mandated cash reserves may only marginally pull up the overnight rates that should otherwise stay below the repo rate given the large surplus, he said.
Excess liquidity as measured by a Bloomberg index has declined to a seven-week low of 3.6 trillion rupees from an all-time high of 11 trillion rupees in September.