The RBI absorbed more than ₹6 lakh crore from the banking system through two VRRR auctions on Monday. Banks showed a stronger preference for parking surplus funds for shorter tenures.
Highlights
- RBI absorbed over ₹6 lakh crore through two VRRR auctions.
- The 30-day auction received bids worth ₹2.59 lakh crore against ₹7 lakh crore notified.
- Overnight VRRR attracted bids of ₹3.53 lakh crore against ₹5 lakh crore notified.
The Reserve Bank of India (RBI) absorbed more than ₹6 lakh crore of excess liquidity from the banking system through two variable rate reverse repo (VRRR) auctions on Monday, September 7, as surplus funds remained elevated.
The first auction was a 30-day VRRR with a notified amount of ₹7 lakh crore. However, banks showed limited interest in locking up their funds for the longer period.
According to RBI data, the auction received bids worth just over ₹2.59 lakh crore. The central bank accepted the bids at a cut-off and weighted average rate of 5.24%.
Following the muted response, the RBI announced another VRRR auction, this time for an overnight tenure with a notified amount of ₹5 lakh crore.
The second auction attracted a comparatively stronger response. Banks submitted bids worth ₹3,53,390 crore, representing more than 70% of the notified amount. The RBI accepted the entire bid amount at a cut-off and weighted average rate of 5.24%.
The response indicated that banks were more comfortable parking their surplus funds with the central bank for shorter periods rather than committing liquidity for 30 days.
A VRRR auction is a liquidity-management instrument through which the RBI absorbs excess funds from banks. The banking system’s liquidity surplus was estimated at around ₹11.16 lakh crore as of September 6.
The RBI has intensified its liquidity absorption operations following substantial inflows under its special foreign currency measures.
According to RBI data, these measures mobilised $136.38 billion by August 31. This included $127.23 billion through FCNR(B) deposits, $5.26 billion through OFCBs and $3.89 billion through ECBs.
The strong response led to the FCNR(B) window being closed one month early on August 31. The ECB/OFCB facility, however, will remain available until December 31.
Foreign currency mobilised through these measures entered the banking system, while subsequent swaps with the RBI added rupee liquidity. To manage the surplus and keep money-market rates aligned with the policy repo rate, the RBI has conducted 32 VRRR auctions since August, with maturities ranging from overnight to 14 days.
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