RBI Absorbs Over ₹6 Lakh Crore, Banks Favour Overnight Liquidity Window

Mumbai: The Reserve Bank of India (RBI) absorbed over Rs 6 lakh crore of surplus banking funds through two variable rate reverse repo (VRRR) auctions.

The 30-day auction received bids of Rs 2.59 lakh crore against the notified Rs 7 lakh crore, reflecting a weak response.

The central bank subsequently announced an additional overnight auction.

Banks favour shorter tenure

Demand improved in the overnight auction, with banks submitting bids worth Rs 3,53,390 crore against the notified amount of Rs 5 lakh crore.

The bids represented more than 70 percent of the offered amount, indicating that lenders were more comfortable parking surplus cash for a shorter period.

The RBI accepted the full bids received in both auctions. The cut-off and weighted average rates stood at 5.24 percent for both the 30-day and overnight operations.

A VRRR auction allows the RBI to temporarily absorb excess cash from banks and keep short-term interest rates aligned with its monetary policy rate.

Surplus exceeds Rs 11 lakh crore

Banking system liquidity was estimated to be in surplus of around Rs 11.16 lakh crore as of September 6.

The RBI has intensified absorption operations after banks received substantial funds through special foreign currency deposit and borrowing measures.

These measures mobilised USD 136.38 billion by August 31. This comprised USD 127.23 billion through FCNR(B) deposits, USD 5.26 billion through overseas foreign currency borrowings and USD 3.89 billion through external commercial borrowings.

Foreign inflows boost rupee liquidity

The FCNR(B) window was closed one month early on August 31 following a strong response. However, the overseas foreign currency borrowing and external commercial borrowing facilities will remain open until December 31.

Foreign currency entering the banking system, followed by swaps with the RBI, provided lenders with rupee liquidity.

The RBI conducted 32 VRRR auctions between August and early September, with maturities ranging from overnight to 14 days, to absorb surplus funds and align money-market rates with the repo rate.