RBI absorbed ₹2.23 lakh crore through a VRRR auction at 5.24% as surplus banking liquidity remained near ₹6.94 lakh crore.

RBI Steps Up Liquidity Management |

Mumbai: The Reserve Bank of India absorbed ₹2.23 lakh crore from the banking system through a variable rate reverse repo auction as it continued efforts to manage high surplus liquidity.

Banks submitted bids worth ₹2,22,629 crore against the notified auction amount of ₹2.25 lakh crore. The central bank accepted the entire amount offered by participating institutions.

The funds were accepted at a weighted average rate of 5.24%, the RBI said in its official release.

Under a variable rate reverse repo auction, banks temporarily park their surplus funds with the RBI and earn interest. The operation helps the central bank withdraw excess cash from the financial system for a specified period.

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Banking liquidity remains high

The RBI has regularly conducted VRRR auctions since last month to absorb surplus money and bring overnight money market rates closer to the policy repo rate.

India’s banking system had an estimated liquidity surplus of nearly ₹6.94 lakh crore as of September 17, according to RBI data.

Excess liquidity can push short-term interest rates below the repo rate, weakening the transmission of monetary policy. The RBI’s liquidity operations are aimed at maintaining better alignment between market rates and its policy stance.

OMO sales also underway

The central bank is also using open market operations to remove surplus cash. It sold government securities worth ₹50,000 crore through an OMO auction on Thursday.

Two additional government security sale tranches of ₹25,000 crore each are scheduled for September 21 and September 28.

Together, the VRRR auctions and bond sales form part of the RBI’s broader liquidity management strategy.

The banking system accumulated surplus funds following strong mobilisation of foreign currency non-resident bank deposits. Subsequent foreign exchange swaps with the RBI released additional rupee liquidity to banks.

Government expenditure towards salaries, pensions and other month-end payments also increased the availability of funds. The RBI is expected to continue monitoring liquidity conditions and use suitable tools to keep overnight interest rates aligned with its policy objectives.

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