Higher govt spending likely to help ease liquidity in banking system

The liquidity in the banking system could ease in the coming week due to an increase in government spending – a development that would be the key for the Reserve Bank of India (RBI) to decide whether to extend the incremental cash reserve ratio (I-CRR) mandate for banks.

There are signs of improvement in the liquidity scenario as banks parked Rs 25, 833 crore with the RBI on Thursday.

Market participants expect liquidity to gradually improve by the end of the month or during the first week of September, aided by government spending.

The RBI has been leveraging liquidity conditions