1 week ago
RBI Launches ₹5 Trillion Liquidity Withdrawal Amid Tech Dispute
The Reserve Bank of India is trying to remove some extra money from banks.
It plans to take ₹5 trillion through an overnight auction on 7 September.
An earlier, larger auction received fewer bids than expected.
Some traders said a technology problem and a platform change stopped banks from joining.
Another trader said there was no such problem and that bids went through the normal system.
India’s banks had ₹11.6 trillion more liquidity than needed on 6 September.
Too much extra money could push up inflation and financial-asset prices.
Experts expect the RBI to consider more auctions and other methods to manage the surplus.
The Reserve Bank of India will conduct a ₹5 trillion overnight variable rate reverse repo auction on 7 September.
Banks offered only ₹2.59 trillion in an earlier auction designed to withdraw ₹7 trillion, prompting early redemption.
Five traders attributed the weak participation to technical issues and a change from the usual E-Kuber platform.
Another trader told Reuters that all bids passed through E-Kuber and denied that technical problems caused the weak response.
Banking-system surplus liquidity reached ₹11.6 trillion on 6 September, while analysts discussed longer auctions and other tools to absorb it.
- Who
- The Reserve Bank of India, Indian banks, traders, and financial analysts.
- What
- The RBI announced a ₹5 trillion overnight variable rate reverse repo auction after weak participation in an earlier liquidity-withdrawal auction.
- Where
- India’s banking system, using RBI auction platforms including E-Kuber.
- When
- The new auction is scheduled for 7 September; the liquidity surplus was reported at ₹11.6 trillion on 6 September, and the earlier auction had weak participation.
- Why
- The RBI is seeking to absorb excess banking liquidity, which could contribute to inflation and higher financial-asset prices.
Technical Problems Caused Weak Participation
Auction System Worked Normally
Reason for low bids
Technical Problems Caused Weak Participation
Five traders blamed technical problems, with one saying a platform change from E-Kuber left some banks unaware and unable to participate.
Auction System Worked Normally
Another trader told Reuters that all bids had passed through E-Kuber and denied that technical problems caused the weak response; the RBI did not comment.
Key facts
- New operation
- ₹5 trillion overnight variable rate reverse repo auction scheduled for 7 September
- Earlier auction
- The RBI sought to withdraw ₹7 trillion, but banks offered ₹2.59 trillion
- Liquidity surplus
- ₹11.6 trillion on 6 September, nearly 4% of deposits
- Earlier surplus
- ₹9.7 trillion on 3 September, above the previous peak of ₹9.2 trillion in September 2021
- Foreign-currency deposits
- Banks collected $127.23 billion through the RBI’s foreign currency deposit scheme for non-residents
- Current reverse-repo duration
- RBI operations currently range from overnight to 15 days
- Potential tools
- IDFC First Bank favored a combination of market stabilisation scheme bonds and sell-buy swaps
Quotes
A treasury official
A treasury official commenting on the possibility of another longer reverse repo auction.
“The preferred option would be a combination of MSS (market stabilisation scheme bonds) and sell-buy swaps. These two tools would be the least disruptive but are also associated with their own challenges.”
livemint.com
“The bidding for the VRRR was changed to another platform, as E-Kuber, the usual one, had some technical issues, and hence some banks were caught unaware and were not able to participate.”
livemint.com
Sources
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