RBI Absorbs Rs 2.1 Lakh Crore Through Overnight VRRR Auctions Amid Surplus Liquidity

The Reserve Bank of India absorbed Rs 2,10,192 crore from the banking system on Monday through two overnight Variable Rate Reverse Repo (VRRR) auctions, continuing its efforts to manage surplus liquidity in the financial system.

In the first auction, banks submitted bids worth Rs 2,10,688 crore against the notified amount of Rs 2 lakh crore. The RBI accepted Rs 2,00,050 crore at a weighted average rate of 5.24 per cent.

Demand was considerably lower in the second auction, where banks submitted bids worth Rs 10,142 crore against the notified amount of Rs 50,000 crore. The central bank accepted the entire amount offered by banks.

The auctions were conducted as liquidity conditions in the banking system remained significantly above neutral levels. According to RBI data, surplus liquidity stood at around Rs 5.16 lakh crore as of October 4.

The central bank has conducted a series of VRRR auctions over the past two months to absorb excess funds from banks and help keep short-term money market rates aligned with the repo rate, the RBI's key policy benchmark.

Banking system liquidity has been supported in part by increased mobilisation of Foreign Currency Non-Resident (Bank), or FCNR(B), deposits.

These deposits bring foreign currency into the banking system, while subsequent swap transactions with the RBI inject rupee liquidity into banks.

Government expenditure towards the end of the month, including salary and pension payments, has also contributed to higher liquidity in the banking system.

With surplus liquidity remaining elevated, market participants expect the RBI to continue using short-term liquidity management instruments, including VRRR auctions, to absorb excess funds and maintain stability in money market rates.