The RBI Is Planning To Inject ₹2.90 Lakh Into The Indian Banking System? Know All Details

This article explains the Reserve Bank of India’s (RBI) recent announcement to inject ₹2.90 lakh crore of liquidity into the Indian financial system, why such a large infusion was considered necessary, what tools the RBI is using, and what the impacts are likely to be for banks, markets, and the broader economy.

Liquidity measures of this scale are rare outside regular monetary policy action. They reflect proactive central-banking in the face of tightening cash conditions, seasonal pressures, and stress in money and bond markets. We also place the announcement in broader context by comparing it with other RBI liquidity initiatives.

Why the RBI Announced a ₹2.90 Lakh Crore Liquidity Injection?

Liquidity in a financial system refers to the availability of funds that banks can lend, invest, or use for daily operations. When liquidity shrinks, short-term interest rates can spike, markets can seize up, and credit growth can slow, affecting businesses and households alike. 

Recently, the Indian banking system experienced tight cash conditions, partly due to seasonal outflows such as advance tax and GST payments, which drained cash from banks’ books. This forced the RBI to intervene.

On 23 December 2025, the RBI announced plans to inject ₹2.90 lakh crore (₹2.9 trillion) into the banking system using a combination of liquidity tools, including Open Market Operations (OMO) and a US dollar–rupee buy/sell swap. 

These measures are intended to ease tight money market conditions, stabilise interest rates, and improve credit flows, particularly ahead of the new financial year when liquidity demands traditionally rise.

The scale of this liquidity infusion, larger than typical OMOs, underscores the RBI’s focus on durable liquidity rather than short-term fixes alone, balancing price stability with growth support in evolving market conditions.

What Tools RBI Is Using to Inject Liquidity?

The RBI is employing multiple tools to put liquidity into the system. Each has a distinct purpose, audience, and potential impact:

1. Open Market Operations (OMO)

The RBI will purchase government securities (G-sec) in the open market, effectively paying cash to banks in exchange for these bonds. The purchases are of high-quality, liquid sovereign bonds, ensuring that banks receive funds they can use immediately.

2. USD/INR Buy/Sell Swap

In addition to OMOs, the RBI plans to conduct a three-year USD/INR buy/sell swap auction. Under this, the RBI will buy US dollars now and sell them back later, injecting rupee liquidity today while managing future FX commitments. This helps address foreign exchange market knocks and inject durable currency liquidity.

3. Variable-Rate Repo (VRR) Auctions

While not part of the headline ₹2.90 lakh crore, the RBI continues to use repo operations — where banks borrow directly from the RBI against collateral, to manage short-term cash mismatches.

To clarify these mechanisms:
 

This table shows that RBI’s strategy uses both market interventions (OMOs) and currency swap tools to balance immediate system needs with longer-term stability. The variety of tools helps ensure that liquidity flows support credit, markets, and currency markets without excessively loosening monetary policy.

Why Liquidity Tightened in Late 2025?

Liquidity conditions in India had tightened in December 2025 for several reasons:

• Advance tax & GST outflows: Large corporate and individual taxpayers often pay taxes just before the financial year ends, withdrawing cash from banks.
• Foreign exchange interventions: RBI’s ongoing operations to stabilise the rupee have reduced some rupee liquidity (as dollars are sold into the market).
• Seasonal credit demand: End-of-year credit demand from sectors such as trade and industry tends to rise, increasing demand for bank funds.

When system liquidity turns negative, meaning banks have fewer funds than needed for their normal operations, short-term rates like the weighted average call rate rise above the RBI’s policy repo rate. This signals stress in daily funding markets, prompting central bank action.

What the Liquidity Injection Aims to Achieve?

The RBI’s measures are designed to:

• Stabilise short-term interest rates: Ensuring call money and other money-market rates don’t diverge far above the policy repo rate.
• Support credit growth: When liquidity tightens, banks may reduce lending. Durable liquidity is intended to prevent that slowdown.
• Improve bond market conditions: Large liquidity injections often push yields lower, benefiting government and corporate borrowing. Recent activity saw the 10-year bond yield drop in response to the RBI’s announcement.
• Strengthen confidence: By signalling willingness to act, the RBI bolsters market expectations of orderly monetary conditions.

Economists expect this action to support smoother monetary policy transmission and reduce volatility in both money and bond markets.

How This Compares to Past Liquidity Measures

The 2025 liquidity move is significant even by the RBI’s recent standards. Earlier liquidity actions this year and in recent months include:
 

Compared to previous actions, the ₹2.90 lakh crore plan is one of the largest in recent quarters, signalling heightened RBI vigilance over liquidity conditions. Even as policy rates have eased via CRR cuts and repo cuts earlier in 2025, direct liquidity support remains essential to ensure smooth financial conditions.

Potential Effects on Markets and Borrowers

Debt Markets

The announcement has already led to better sentiment in bond markets, with yields lower following the liquidity news. Lower yields reduce borrowing costs for the government and potentially for corporations in future debt issuances.

Banking Sector

Banks will find it easier to meet funding needs without resorting to expensive overnight borrowing. This can improve net interest margins and encourage lending to businesses and households.

Currency Markets

By using a US dollar–rupee swap, the RBI absorbs excess dollar liquidity while adding durable rupee funds, which can help smooth rupee volatility, especially in forward markets where pressures had been evident.

Credit Flow

Sufficient liquidity enables banks to continue lending at controlled rates. This is particularly important for sectors such as housing, MSMEs, and infrastructure, which rely on stable credit conditions to expand operations and investment.

Conclusion

The Reserve Bank of India’s plan to inject ₹2.90 lakh crore of liquidity into the banking system marks a major liquidity management operation. Through a mix of government securities purchases, US dollar–rupee swaps, and repo operations, the RBI is addressing both short-term cash deficits and ensuring durable liquidity for the financial system. 

The move stabilises money markets, boosts bond market confidence, supports credit availability, and signals proactive central-banking at a time of seasonal pressures and financial uncertainties.

As markets digest this liquidity injection, the broader expectation is that the RBI will continue to balance price stability with growth support, responding dynamically to evolving liquidity conditions. The durability and timing of this action, particularly near the year-end, may also influence policy settings in the coming quarters.