RBI Acquires Nearly Half of Government Bond Issuances to Bolster Banking System Liquidity
The Reserve Bank of India (RBI) has executed a substantial intervention in the government securities market during the current fiscal year. According to comprehensive public data analysis, the central bank has purchased government bonds equivalent to a significant 47 percent of the Centre's total bond issuances throughout FY26. This strategic move was specifically designed to provide robust support for liquidity within the banking system.
Massive Scale of RBI's Open Market Operation Purchases
Detailed data compiled from RBI sources and reported by news agency PTI reveals the enormous scale of these transactions. Between April 4, 2025, and February 13, 2026, the Government of India successfully raised an impressive Rs 13,65,000 crore through the issuance of government securities as part of its comprehensive gross borrowing program.
During this identical timeframe, the Reserve Bank of India conducted multiple Open Market Operation (OMO) purchase auctions totaling a massive Rs 6,39,203 crore. These deliberate purchases served to inject durable, long-term liquidity directly into the banking infrastructure, creating a substantial financial cushion.
Cushioning Liquidity Amid Sustained Government Borrowing Pressure
The extensive OMO purchases occurred against a backdrop of persistent government borrowing activities, which typically absorb substantial liquidity from the banking system and create upward pressure on bond yields. By strategically purchasing bonds from the secondary market, the central bank effectively infused vital liquidity and helped maintain orderly, stable market conditions.
Financial experts emphasized that this intervention successfully cushioned the banking system from potential liquidity tightness and prevented excessive hardening of yields despite the heavy supply of government securities. Furthermore, it ensured adequate funds remained available within the system to support continued credit growth to various economic sectors.
Brijesh Shah, Senior Vice President of Fixed Income at Bandhan AMC, provided crucial insight: "RBI's OMO purchases have been actively deployed to ensure adequate core liquidity, amid RBI's USD sales at a time of capital outflows and INR depreciation pressures. Various tools deployed by RBI including OMO purchases have thus provided durable liquidity and, in the process, mitigated upward pressure from global market forces."
Shah further noted that potential positive sentiment surrounding capital flows following the recent India-US trade deal, which could potentially reduce the necessity for foreign exchange intervention, combined with the deployment of tools like FX swaps, might imply a reduced need for OMO operations moving forward.
Liquidity Fluctuations and Prevailing Market Conditions
Liquidity within the banking system remained predominantly in surplus mode for the majority of FY26, with only a few isolated episodes when it temporarily slipped into deficit territory. The RBI's OMO purchase operations notably intensified starting from December 2025, precisely when liquidity conditions tightened and fell into deficit mode.
The central bank's substantial liquidity infusion also played a critical role in keeping money market rates contained, with overnight rates trading consistently close to the established repo rate throughout this period.
Since January 2025, government bond yields have experienced considerable volatility due to multiple influencing factors. These include geopolitical tensions pushing crude oil prices higher, evolving expectations around the conclusion of the rate cut cycle, and higher-than-anticipated gross borrowing numbers for FY27 announced in the Union Budget.
The 10-year benchmark government bond yield fluctuated within the 6.30 to 6.70 percent range between January 2025 and February 2026, reflecting these market uncertainties.
FY27 Borrowing Plan and Its Impact on Bond Yields
The government has outlined an ambitious borrowing plan for FY27, targeting Rs 17.2 lakh crore, which significantly exceeds market projections of Rs 16.5 to 17 lakh crore. This announcement triggered a sharp rise in government bond yields as markets digested the substantial supply increase.
However, the net borrowing is pegged at Rs 11.73 lakh crore, compared with Rs 11.53 lakh crore previously, representing an increase of Rs 20,000 crore. Additional RBI data indicates that government securities worth Rs 5.47 lakh crore are scheduled to mature during this period.
Government borrowing remains a crucial determinant of interest rates throughout the economy. A higher supply of bonds typically exerts considerable pressure on yields unless matched by equally strong demand from institutional investors including banks, insurance companies, and foreign portfolio investors.
