Banking system liquidity surged to a four-year high of Rs 7.7 lakh crore on Tuesday, driven largely by foreign currency inflows through FCNR(B) deposits, prompting the Reserve Bank of India (RBI) to step up liquidity absorption operations. System liquidity averaged Rs 3.67 lakh crore in August, more than three times the Rs 1.07 lakh crore recorded in July, according to RBI data. The sharp rise in surplus liquidity is expected to help banks replace high-cost deposits and certificates of deposit (CDs), lowering their cost of funds and potentially supporting net interest margins.