The Reserve Bank of India injected ₹50,000 crore into the banking system through open market purchase auctions on Monday, witnessing overwhelming demand from market participants who bid more than double the notified amount.

Strong Market Response to OMO

The central bank's open market operations attracted significant interest, with participants offering ₹1.22 lakh crore against the announced ₹50,000 crore. The 6.64% GS 2035 government security paper emerged as the most sought-after instrument, receiving the maximum number of bids during the auction.

Upcoming Liquidity Operations

The RBI has scheduled additional liquidity support measures in the coming days to maintain adequate system liquidity:

• January 22: Another OMO purchase operation for ₹50,000 crore
• Tuesday: Dollar-rupee buy/sell swap operation for $10 billion

These coordinated measures are designed to return systemic liquidity to surplus levels and contain volatility in short-term funding rates across the banking system.

Market Participants' Perspective

"We can see from the amount offered that the response to the OMO was good. Participants would want to sell from the held to maturity (HTM) books and book profits in the last quarter of the year," explained Gopal Tripathi, head of treasury at Jana Small Finance Bank.

The strong response reflects banks' strategy to optimize their investment portfolios and realize gains from their HTM securities during the final quarter of the financial year.

Current Liquidity Conditions

System liquidity has maintained a mild surplus position, averaging ₹38,728 crore in January. However, this surplus serves multiple regulatory requirements beyond general market operations.

"Whatever surplus is in the system is used to fulfill other liquidity conditions of CRR and LCR," noted Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank, highlighting how available liquidity supports various regulatory compliance requirements.

The RBI's proactive liquidity management through these operations demonstrates its commitment to maintaining stable funding conditions while ensuring adequate money supply for banking system operations.

The Reserve Bank of India has introduced comprehensive changes to foreign exchange management rules, implementing new regulations that significantly restrict cross-border guarantee arrangements between residents and non-residents.

New FEMA Guarantee Regulations

Under the Foreign Exchange Management (Guarantees) Regulations, 2026, the central bank has established clear prohibitions on guarantee arrangements involving residents and non-residents. The regulations state that no person resident in India can be a party to a guarantee where any other party is a person resident outside India, except in accordance with the specified regulations.

Expanded Definition and Scope

The RBI has broadened the definition of guarantees to encompass counter-guarantees and liability portfolios, creating a more comprehensive regulatory framework. This expansion ensures that various forms of financial commitments fall under the regulatory purview, preventing potential circumvention of the rules through alternative guarantee structures.

Permitted Arrangements Under Specific Conditions

Resident Indians can still act as guarantors or principal debtors under certain circumstances. The underlying transaction must be permitted under FEMA and related regulations, and both the surety and principal debtor must be authorized to lend to or borrow from each other under the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018.

Key Exemptions and Exceptions

The regulations provide several important exemptions to ensure legitimate banking and business operations continue unimpeded:

• Fully collateralized authorized dealer banks
• Agents of foreign shipping or airline companies
• Resident-to-resident guarantee arrangements
• Guarantees by authorized dealer bank of india branches outside India or in International Financial Services Centres
• Arrangements complying with Foreign Exchange Management (Overseas Investment) Regulations, 2022

Specialized Financial Instruments

The RBI has also addressed Irrevocable Payment Commitments (IPCs) in the new framework. IPCs issued by authorized dealers acting as custodian banks are exempted when the principal debtor is a registered Foreign Portfolio Investor and the creditor is an authorized central counterparty in India.

These new regulations represent a significant shift in India's foreign exchange management approach, emphasizing stricter controls on cross-border financial commitments while maintaining necessary exemptions for legitimate business operations.