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The Reserve Bank of India on Friday said it will cease the operations of its secondary market 'G-Sec Acquisition Programme' or 'G-SAP'.

RBI Governor ShaktiKanta Das said that G-SAPs have been successful in addressing market concerns and anchoring yield expectations in the context of the large borrowing programme of the government.

"Given the existing liquidity overhang, the absence of a need for additional borrowing for GST compensation, and the expected expansion of liquidity in the system as Government spending increases in line with budget estimates, the need for undertaking further G-SAP operations at this juncture does not arise," he said.

"The Reserve Bank, however, would remain in readiness to undertake G-SAP as and when warranted by liquidity conditions and also continue to flexibly conduct other liquidity management operations including Operation Twist (OT) and regular open market operations (OMOs)," he added.

According to Das, the total liquidity injected into the system during the first six months of the current financial year through OMOs including G-SAP, was Rs 2.37 lakh crore, as against an injection of Rs 3.1 lakh crore over the full financial year 2020-21.

The development surrounding G-SAP assumes significance since the banking system has been flushed with surplus liquidity.

Since the onset of the pandemic, the Reserve Bank has maintained ample surplus liquidity to support a speedy and durable economic recovery.

The level of surplus liquidity in the banking system has increased further during September 2021.

Even with absorption under fixed rate reverse repo, variable rate reverse repo (VRRR) of 14 days and fine-tuning operations under the liquidity adjustment facility (LAF), it has averaged about Rs 9 lakh crore per day as against Rs 7 lakh crore during June to August 2021.

The surplus liquidity rose even further to a daily average of Rs 9.5 lakh crore up to October 6.

In addition, Das said the potential liquidity overhang amounts to more than Rs 13 lakh crore.