Banks' borrowing from the Reserve Bank of India (RBI) through the marginal standing facility (MSF) window also stood higher ₹ 1.97 trillion. MSF is a window for banks to borrow from RBI when interbank liquidity dries up.

The shortage has kept pressure on overnight rates, with call money and TREPS rates at 6.75%-6.90% .

Outflows on account of advance tax and GST coincided in the same reporting fortnight, at a time when a big chunk of the money is blocked to meet incremental cash reserve ratio (I-CRR) requirements.

System liquidity had turned deficit for the first time this fiscal in August, after the RBI ordered banks to set aside 10% of their incremental deposits— as ICRR— received between 19 May and 28 July.

Bankers expect the deficit to ease by next month once the government starts spending and RBI completes unwinding the excess cash kept as ICRR. The central bank will release 25% of the funds under ICRR on 23 September and the remaining 50% on 7 October.

"We expect the RBI to keep liquidity tight in the near term in order to keep short-term rates elevated, given the pressure on rupee and underlying inflationary risks. This may prevent the RBI from announcing variable repo rate auctions as well," said Upasna Bharadwaj, chief economist, Kotak Mahindra Bank. Bharadwaj expects liquidity to normalize towards the surplus zone by end-September to early-October, amid government's month-end spending.