The pressure on the balance of payments, led by net capital outflows in the third quarter of 200809 and the associated intervention sales by the RBI in the forex market also implied corresponding withdrawal of domestic liquidity from the banking system, which the RBI had to more than offset by expanding liquidity against domestic assets in its balance sheet.
Net capital flows declined from $ 108.0 billion in 2007-08 to $ 9.1 billion in 2008-09. India's foreign exchange reserves declined by $ 58.0 billion, of which $ 37.9 billion was on account of valuation changes, and the remaining $ 20.1 billion decline reflected the financing needs of the BoP.