1 week ago
RBI Absorbs Over ₹6 Lakh Crore as Banks Prefer Overnight
Banks had a very large amount of extra money available.
The Reserve Bank of India used two auctions to temporarily collect some of that money.
In the 30-day auction, banks offered about ₹2.59 lakh crore, much less than the ₹7 lakh crore available.
In the overnight auction, they offered about ₹3.53 lakh crore.
This showed that banks were more comfortable lending their extra money for just one night.
The RBI accepted all the bids at an interest rate of 5.24%.
The extra money had grown partly because foreign-currency measures brought funds into the banking system.
Swapping those foreign funds with the RBI gave banks more rupees.
The RBI has held many similar auctions to manage the surplus and keep short-term interest rates near its policy rate.
The Reserve Bank of India absorbed more than ₹6 lakh crore through 30-day and overnight VRRR auctions.
Banks bid ₹2,59,276 crore against ₹7 lakh crore offered in the 30-day auction.
The overnight auction received ₹3,53,390 crore in bids against a notified ₹5 lakh crore.
The RBI accepted the bids at a 5.24% cut-off and weighted average rate in both auctions.
Banking-system surplus liquidity was reported at ₹11.16 lakh crore in most reports, while one report estimated ₹10.73 lakh crore.
- Who
- The Reserve Bank of India and commercial banks.
- What
- The RBI absorbed more than ₹6 lakh crore through 30-day and overnight variable rate reverse repo auctions.
- Where
- India’s banking system; the reports were datelined Mumbai.
- When
- The auctions were conducted on Monday; surplus liquidity was reported as of September 6.
- Why
- The RBI was absorbing surplus rupee liquidity created partly by foreign-currency inflows and subsequent swaps with the central bank.
Shorter-Tenure Preference
Longer-Tenure Caution
Banks’ auction participation
Shorter-Tenure Preference
Banks showed stronger interest in the overnight auction, submitting more than 70% of the notified amount and indicating comfort with parking funds for a shorter period.
Longer-Tenure Caution
The 30-day auction received only ₹2.59 lakh crore against ₹7 lakh crore offered, indicating muted demand for locking funds away for a longer period.
RBI’s liquidity management
Shorter-Tenure Preference
The RBI used the overnight auction to absorb additional surplus funds after the longer-tenure auction drew a limited response.
Longer-Tenure Caution
The mixed response suggests that banks were not equally willing to place their surplus liquidity in the 30-day window, despite a large system-wide surplus.
Key facts
- 30-day VRRR notified amount
- ₹7 lakh crore
- 30-day bids received
- ₹2,59,276 crore
- Overnight VRRR notified amount
- ₹5 lakh crore
- Overnight bids received
- ₹3,53,390 crore, or more than 70% of the notified amount
- Auction rate
- 5.24% cut-off and weighted average rate for both auctions
- Special forex measures
- USD 136.38 billion mobilised by August 31
- FCNR(B) mobilisation
- USD 127.23 billion by August 31
- VRRR operations
- 32 auctions conducted between August and early September, with maturities from overnight to 14 days
Sources
RBI absorbs Rs 6 lakh crore as banking system flush with funds
Banks Hold Back From RBI’s ₹7 Lakh Crore VRRR Auction, Participation Stays Muted Despite Liquidity Glut
Surplus liquidity: RBI mops up Rs 6 lakh cr in 2 auctions with mixed response
RBI Absorbs Over ₹6 Lakh Crore, Banks Favour Overnight Liquidity Window
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