India Ratings, a leading rating agency, forecasts that the liquidity of the banking system in India is likely to turn volatile in the near term. This volatility is expected to be influenced by the quarterly tax outflows and monthly Goods and Services Tax (GST) outflows. Additionally, the festive season is anticipated to further impact the liquidity dynamics of the banking system. The agency highlights the potential challenges and fluctuations that the banking industry may face due to these factors. The upcoming tax outflows and GST outflows are expected to create significant pressure on the liquidity position of banks. With businesses and individuals making tax payments on a quarterly basis, there is a consequent outflow of funds from the banking system. This outflow poses challenges in managing the liquidity position effectively. Furthermore, the monthly GST outflows, which are linked to the consumption patterns and economic activity in the country, also impact the liquidity scenario. The timing and magnitude of these outflows can lead to fluctuations and volatility in the banking system’s liquidity. As the festive season approaches, there is an additional strain on liquidity. Festivals in India often witness increased cash circulation due to heightened consumer spending. With the festive season typically being a time of high economic activity and increased expenditure, this could further disrupt the liquidity dynamics of the banking system. India Ratings highlights the importance for banks to proactively manage their liquidity reserves, especially during this period of potential volatility. Liquidity management becomes crucial for banks to ensure adequate funds for their operations and to meet the demand of their customers. It is recommended that banks implement robust liquidity management strategies and contingency plans to withstand and navigate through the anticipated fluctuations. The agency suggests that banks should focus on maintaining an optimal liquidity position to mitigate the risks associated with tax outflows, GST outflows, and the festive season. While the temporary fluctuations in liquidity may pose challenges, proactive and prudent management would play a crucial role in maintaining overall stability within the banking system.