RBI's ₹7 Lakh Crore VRRR Auction Sees Low Bank Participation Despite Excess Funds

The Reserve Bank of India's 30-day variable rate reverse repo (VRRR) auction received a tepid response from banks, with bids falling significantly short of the notified amount, despite surplus liquidity across the banking system.

A VRRR auction is a monetary policy tool used by a central bank to absorb excess cash from the banking system.

The Reserve Bank of India (RBI) received ₹2,59,276 crore bids for 30-day VRRR, as against a notified amount of ₹7 lakh crore.

The bids were accepted at a cut-off and weighted average rate of 5.24%, according to an RBI notification.

In order to absorb further liquidity, the central bank also announced an overnight VRRR auction for a notified amount of ₹5 lakh crore on Monday. The auction took place between 11:00 am and 11:30 am.

Currently, the liquidity in the banking system is estimated to be in surplus of around ₹10.73 lakh crore.

The RBI has stepped up liquidity absorption operations as the banking system has been flooded with funds following large inflows through the special FCNR(B) deposit scheme.

The RBI's special forex measures mobilised $136.38 billion by August 31, including $127.23 billion through FCNR(B) deposits, $5.26 billion through OFCBs and $3.89 billion via ECBs, according to the RBI data.

The FCNR(B) window was closed a month early on August 31 due to the strong response, while the ECB/OFCB facility remains open till December 31 and inflows through these routes are expected to pick up.

The mobilisation brought foreign currency into the banking system, while the subsequent swaps with the RBI provided rupee liquidity to banks.

In order to align with the repo rate, the central bank has conducted 32 VRRR auctions between August and so far in September, with maturities ranging between overnight and 14 days.