Banks Loaded With Surplus Liquidity Of Rs5 Tn
RBI's dividend to government expected in May 2026, likely exceeding Rs3 lakh crore.
FinTech BizNews Service
Mumbai, 20 May 2026: Baroda BNP Paribas Mutual Fund has released a new report titled Money Market Outlook
The Report shares key insights on liquidity conditions, government spending, the RBI stance, and investment strategies.
Current Liquidity Environment
- Banking system has a surplus liquidity of over Rs5 lakh crore in April 2026, a four-year high
- System liquidity averaged above Rs4 lakh crore in early April 2026
- Liquidity surged from Rs1.57 lakh crore in March to higher levels in April
- G-Sec maturities of Rs1.17 lakh crore till April 15, 2026, contributed to liquidity
- Overnight rates traded below the policy repo rate of 5.25%, indicating excess funds
Key Drivers of Surplus Liquidity
- 12-month CD spreads remain elevated at about 200 basis points, reflecting risk premiums.
- Surplus liquidity forecast remains above 1% of NDTL (Rs2.50 lakh crore) until Q1 2027.
- RBI's dividend to government expected in May 2026, likely exceeding Rs3 lakh crore.
- Geopolitical tensions may influence inflation and rate hike expectations.
RBI Stance and Policy Outlook
- RBI signals proactive liquidity management but has not committed to aligning operational rates with repo.
- Focus on supporting economic growth while monitoring inflation risks.
- Expectation of calibrated rate hikes only in late CY 2026 to address demand-side inflation.
- Liquidity surplus supports transmission of policy rates and government spending.
Investment Strategy and Market Outlook
- Preference for overweight positions in longer maturity buckets (Jan–March 2027) to capitalize on spreads.
- Maintaining high credit quality (>85% AAA/Sovereign) in funds.
- Anticipation of elevated spreads and higher accruals from term premiums.
- Cautious approach to inflation risks from geopolitical conflicts, avoiding premature rate hikes.
