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122 Economic Survey 2021-22

LIQUIDITY CONDITIONS AND ITS MANAGEMENT

4.7 Liquidity has remained in surplus in the system since mid-2019 in sync with the easing
of monetary conditions (Figure 6). The liquidity conditions were further eased during the
year 2020-21 after the covid pandemic, and RBI has since then maintained ample surplus
liquidity in the banking system to support growth. In 2021-22 so far, the RBI resumed normal
liquidity operations in a phased manner and engaged in rebalancing liquidity from passive
absorption under fixed rate reverse repo under its Liquidity Adjustment Facility (LAF) to
market based reverse repo auctions (like Variable Rate Reverse Repo (VRRR)). At the same
time it also ensured adequate liquidity in the system in consonance with the accommodative
monetary policy stance to support growth. The liquidity conditions remained in surplus in
2021-22.

Figure 6: Liquidity Conditions

2

0

-2
lakh crore -4

-6

-8

-10
1-Jan-19 1-Mar-19 1-May-19 1-Jul-19 1-Sep-19 1-Nov-19 1-Jan-20 1-Mar-20 1-May-20 1-Jul-20 1-Sep-20 1-Nov-20 1-Jan-21 1-Mar-21 1-May-21 1-Jul-21 1-Sep-21 1-Nov-21 1-Jan-22

Source: RBI
Note: Negative sign indicates surplus liquidity. Surplus liquidity in the banking system is
indicated by the total net LAF absortion. Hence, an increase in total absorbation implies an
increase in surplus liquidity.

4.8 The measures taken by RBI to provide targeted liquidity support to the system in 2021-22
included:

a. Special refinance facilities of `66,000 crore to all-India financial institutions, comprising
`25,000 crore to the National Bank for Agriculture and Rural Development (NABARD);
`10,000 crore to the National Housing Bank (NHB); and `31,000 crore to the Small
Industries Development Bank of India (SIDBI).