RBI Absorbs Over ₹3.53 Lakh Crore Through VRRR Auction To Manage Excess Banking Liquidity

The RBI absorbed over Rs 3.53 lakh crore through a one-day VRRR auction to manage surplus liquidity in the banking system. Against a notified Rs 5 lakh crore, banks submitted bids worth Rs 3,53,390 crore, all of which were accepted at a 5.24 per cent rate. The move follows strong foreign currency inflows through the FCNR(B) scheme.

Mumbai, Sep 7: The Reserve Bank of India on Monday raised over Rs 3.53 lakh crore through an overnight Variable Rate Reverse Repo (VRRR) auction with a 1-day tenor to absorb excess liquidity from the banking system, according to a central bank statement.

RBI absorbs excess liquidity

While the notified amount for the reverse repo auction was Rs 5 lakh crore, the bids received amounted to Rs 3,53,390 crore. The RBI absorbed the entire sum, which works out to over 70 per cent of the notified amount. It accepted the full amount at a cut-off rate and weighted average rate of 5.24 per cent, the statement said.

A VRRR auction is a monetary policy tool used by a central bank to absorb excess cash from the banking system and ensure financial stability in the economy.

The RBI has stepped up liquidity absorption operations as the banking system has been flooded with funds following large inflows through the special FCNR(B) deposit scheme.

Forex inflows boost liquidity

The RBI’s special dollar-rupee forex swap facility for FCNR(B) deposits, Overseas Foreign Currency Borrowings (OFCB) and External Commercial Borrowings (ECB), launched on June 8 this year, has driven an unprecedented surge in foreign exchange inflows into the country to the tune of $73 billion in less than 11 weeks of the launch.

FCNR(B) deposits alone accounted for $65.40 billion, underlining the overwhelming response of Non-Resident Indians to the scheme. The scheme's success underscores the strength of the Indian diaspora, who have reposed faith in the Indian banking system by channelling savings into FCNR(B) deposits at a pace that has consistently exceeded expectations.

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Scheme records strong response

Having reached $73 billion in under eleven weeks, this stands out as the largest and fastest foreign-currency mobilisation exercise undertaken by India, comfortably surpassing the scale and pace of the RBI's 2013 FCNR(B) swap scheme, which had raised about $26 billion over roughly three months.

The response was strong enough for the RBI to advance the closure of the FCNR(B) window itself, from September 30 to August 31, having already achieved its objective ahead of schedule.

(Except for the headline, this article has not been edited by FPJ's editorial team and is auto-generated from an agency feed.)