Rs 3 Lakh Crore RBI Dividend To Boost Banking Liquidity: Report
India’s banking system liquidity surplus is expected to stay elevated over the coming months, supported by government spending and bond maturities, while money market spreads remain unusually high despite abundant funds in the financial system, according to a report by Baroda BNP Paribas Asset Management India.The asset manager said system liquidity averaged more than Rs 4 lakh crore in the first half of April 2026, sharply higher than the Rs 1.57 lakh crore average seen in March. Liquidity surplus in the banking system climbed to more than Rs 5 lakh crore in April, marking a four-year high, the report said.
The report attributed the surplus to higher government expenditure and inflows from maturing government securities. It said G-Sec maturities injected around Rs 1.17 lakh crore into the system up to April 15, with another Rs 35,000 crore expected on April 17.
“The weighted average operational overnight rates have been trading sub-5 per cent, well below the policy repo rate of 5.25 per cent due to the flush of funds,” the report said.
According to the report, the Reserve Bank of India signalled in its April monetary policy meeting that it would remain “proactive and pre-emptive” in managing liquidity to support the economy’s productive requirements. However, the central bank did not reiterate its earlier preference for keeping operational rates closer to the repo rate, even as the rupee faces pressure from geopolitical headwinds.
Baroda BNP Paribas said liquidity conditions were likely to remain comfortable until first-quarter advance tax-related outflows. It forecast surplus liquidity of more than 1 per cent of net demand and time liabilities, equivalent to around Rs 2.5 lakh crore.
The report also pointed to a potentially large dividend transfer from the RBI to the government in May 2026. It estimated the dividend could exceed Rs 3 lakh crore, adding that the funds would eventually flow back into the banking system through government expenditure.
Despite the surplus liquidity environment, the report said money markets continued to price in significant risk premiums across maturities.
“A 10-11 month CD is still trading at about 200 basis points spread from the operational overnight rate which is very high especially in a flush liquidity scenario,” the report said, adding that markets were pricing in the possibility of future rate increases during fiscal year 2027.
The fund house said it continued to expect calibrated interest rate hikes only in the last quarter of calendar year 2026, arguing that any inflationary pressures stemming from conflict in West Asia were likely to be supply-driven.
“Premature action by any central bank in such a scenario puts potential growth of the economy at risk,” the report said.
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