RBI Injects ₹72,300 Crore Through Two VRR Auctions, Liquidity Surplus Drops Sharply After Advance Tax Outflows

Mumbai: The Reserve Bank of India (RBI) infused Rs 72,300 crore into the banking system on Wednesday through two Variable Rate Repo (VRR) auctions. The move came as surplus liquidity in the banking system declined sharply due to advance tax-related outflows.

The RBI's action is aimed at ensuring that banks have enough short-term funds and that money market rates remain stable.

Liquidity Support Through VRR Auctions

The RBI injected Rs 50,016 crore through a two-day VRR auction at a cut-off rate of 5.26 percent.

In addition, the central bank infused another Rs 22,284 crore through a second two-day VRR auction.

Together, the two operations added Rs 72,300 crore of temporary liquidity to the banking system.

VRR auctions are commonly used by the RBI to provide short-term funds to banks whenever liquidity conditions tighten.

Surplus Liquidity Falls Significantly

According to RBI data, surplus liquidity in the banking system stood at around Rs 23,881 crore on June 16.

This was significantly lower than the surplus of about Rs 1.51 lakh crore recorded on June 15.

Market experts said the sharp decline was mainly caused by advance tax payments made by companies, which temporarily moved funds out of the banking system.

Such tax-related outflows often reduce the amount of money available with banks for short periods.

More RBI Action Possible

Banking and treasury experts believe liquidity conditions may remain under pressure in the coming days.

Apart from advance tax payments, upcoming Goods and Services Tax (GST) payments could also lead to additional fund outflows.

V Ramachandra Reddy, Head of Treasury at Karur Vysya Bank, said the RBI may conduct more VRR auctions if required to maintain sufficient liquidity and keep overnight borrowing rates under control.

Market participants expect the central bank to closely monitor liquidity conditions and intervene whenever necessary.

Overnight Rates Remain Elevated

In recent days, overnight borrowing rates have traded above the RBI's repo rate, indicating tighter liquidity conditions.

On Wednesday, the weighted average call money rate stood at 5.37 percent, which was 0.12 percentage points higher than the RBI's repo rate of 5.25 percent.

Meanwhile, the TREPS rate was recorded at 5.21 percent.

The RBI's latest liquidity infusion is expected to ease short-term funding pressures and help stabilize money market rates.