SBI: RBI's Biggest Challenge is Liquidity Management in FY25

SBI Research flags liquidity management as RBI's top challenge for FY25 due to the Just in Time strategy. It predicts sustained banking sector growth and potential rate cuts in Q3 FY25, with inflation at 4.5% and 7.5% growth possible.

Bhakti Kothari
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A new analysis by SBI Research estimates that the biggest challenge for the Reserve Bank of India (RBI) is liquidity management, what with the Just in Time (JIT) strategy all set to be effected. The analysis adds that the strong show by India’s banking sector in the fiscal year 2023-’24 (FY 24) can be expected to continue in FY25.

The analysis also shows that India’s central bank ranks among the top three regulators when it comes to managing inflation, as far as regulatory efficiency goes. Among other conclusions the analysis draws is the observation that it is possible to attain a growth rate of 7.5 per cent in FY25, with average inflation at 4.5 per cent.

On Friday, the RBI took a call to keep the repo rate unchanged at 6.5 per cent for the eighth time in a row, even as the SBI Reach analysis predicted that the central bank could start its rate cut cycle in Quarter Three of the fiscal year 2024-’25, or Q3FY25. The analysis added that the cycle, when it begins, could be shallow.


Among the RBI’s biggest challenges is liquidity management, the SBI Research analysis says, what with the Just in Time (JIT) strategy all set to be effected. JIT is a management strategy that has a company obtaining goods as close as possible to when they are actually needed, so as to minimise inventory holding costs. The strategy aims at ensuring government cash balance stays out of the banking system, and in turn could impact the liquidity dynamics.

Capital flows could throw open opportunities as well as pose problems for the RBI as far as liquidity management is concerned in FY25, and the SBI Research analysis suggests short-term liquidity injections over short-term liquidity withdrawals.


India’s banking sector put up a strong performance in FY24, with a steady 19.5 per cent credit growth as of May 17 this year, in comparison to 15.4 per cent in 2023, the analysis shows, predicting a healthy credit growth of around 14 to 15 per cent in FY25. The overall profits of public sector banks saw a 35 per cent growth in FY24, surpassing Rs 1.4 trillion.


The RBI decision on Friday to retain the repo rate is, in fact, in sync with the recommendation of the SBI Research analysis that the central bank needs to stick to its strategy of withdrawing accommodation as of now.

The SBI Research analysis comes with a disclaimer that views expressed in its report belong to the research team and do not necessarily reflect those of the bank or its subsidiaries. Contents are based on information procured from various sources, and no liability is accepted for the accuracy of facts and figures.