New Delhi [India], March 7 (ANI): The liquidity situation in India's banking sector is expected to improve significantly by the end of March 2025, with a shift towards a strong surplus, according to a research report by Union Bank of India.

The report also indicated that the overall system liquidity is likely to end the financial year in neutral to surplus territory.

It said 'we may potentially see a shift in core liquidity (ex-government balance) towards a strong surplus by end-Mar'25 while system liquidity is also estimated to end the year at neutral to surplus levels'.

The report highlighted the Reserve Bank of India's (RBI) recent liquidity measures, announced on March 5, 2025, amounting to Rs 1.9 lakh crore. These measures exceeded market expectations by a significant margin, suggesting that the central bank is taking proactive steps to ensure adequate liquidity in the financial system.

The report also added that despite the expected improvement in liquidity by March-end, the banking system may face some short-term challenges.

Seasonal tax outflows, such as Goods and Services Tax (GST) payments and advance tax payments, along with currency leakage, could temporarily tighten liquidity conditions.

It said 'While in the near term, overall banking system liquidity may face pressures from seasonal tax outflows (GST, advance tax etc) along with currency leakage, assuming FX related outflows do not play spoilsport'.

However, assuming that foreign exchange-related outflows remain under control, the overall liquidity situation should improve as the financial year concludes.

Interestingly, the market reaction to the RBI's liquidity measures has been relatively subdued. The report attributes this muted response to several factors, including year-end liquidity pressures, an increase in the supply of State Development Loans (SDLs), and a sharp rise in global bond yields.

The global financial landscape has also influenced market sentiment. The report notes that concerns over a slowdown in the U.S. economy have been growing, particularly due to the potential impact of trade tariffs.

Overall, the report suggests that while near-term liquidity conditions may remain tight due to tax-related outflows and global uncertainties, the broader outlook remains positive.

With the RBI's liquidity infusion and other measures, the banking system is expected to end the financial year with improved liquidity conditions, potentially benefiting borrowers and financial markets. (ANI)