RBI Steps In To Tackle Surplus Liquidity, Absorbs ₹2.90 Lakh Crore Via Two VRRR Auctions

Mumbai: The Reserve Bank of India absorbed nearly ₹2.90 lakh crore from the banking system through two variable rate reverse repo auctions on Wednesday as surplus liquidity remained exceptionally high.

The RBI has been conducting VRRR auctions regularly since last month to withdraw excess funds and bring overnight money market rates closer to the policy repo rate.

Strong Demand In First VRRR Auction

In the first liquidity absorption auction, banks submitted bids worth ₹3,17,088 crore against the notified amount of ₹2.50 lakh crore.

The central bank accepted ₹2,50,025 crore at a cut-off rate and weighted average rate of 5.24%, indicating strong demand from banks seeking to park excess funds with the RBI.

The second VRRR auction received a weaker response. Banks placed bids totalling ₹40,302 crore against the notified amount of ₹1 lakh crore. The RBI accepted the entire amount offered.

Banking Liquidity Surplus Near ₹9.85 Lakh Crore

Surplus liquidity in the banking system was estimated at approximately ₹9.85 lakh crore as of September 15. The large surplus has prompted the RBI to deploy several liquidity management tools.

Alongside VRRR operations, the central bank announced open market operation sales of government securities worth ₹1 lakh crore across three tranches.

The first OMO auction, involving securities worth ₹50,000 crore, is scheduled for September 17. Two additional auctions of ₹25,000 crore each will be conducted on September 21 and September 28.

What Caused Excess Banking Liquidity?

Banks’ heavy mobilisation of Foreign Currency Non-Resident Bank deposits contributed significantly to the liquidity build-up.

These deposits brought foreign currency into India, while subsequent swap transactions with the RBI released rupee liquidity into the banking system.

Government spending towards salaries, pensions and other month-end payments also increased the availability of funds. The RBI’s VRRR auctions and government bond sales are aimed at draining this surplus.