RBI absorbs Rs 71,971 crore via overnight VRRR auction amid huge surplus liquidity

Fresh updates from the financial markets indicate that The Reserve Bank of India (RBI) on Tuesday absorbed Rs 71,971 crore from the banking system through an overnight variable rate reverse repo (VRRR) auction amid a huge surplus.

The central bank received bids worth Rs 71,971 crore, which it accepted fully, for a notified amount of Rs 75,000 crore, according to an official release.

The bids were accepted at a trimmed-off and weighted average rate of 5.24 per cent, the release stated.

The RBI has been conducting various VRRR auctions since last month in order to absorb surplus liquidity from the banking system and align the overnight money market rates to the repo rate.

At present, liquidity in the banking system is estimated to be in surplus of around Rs 4.92 lakh crore as on September 21, as per the RBI data.

The central bank additionally conducted two open market operations (OMO) resulting in sales of government securities worth Rs 50,000 crore on September 17 and Rs 25,000 crore on September 21.

Under an OMO sale, banks and other market participants pay the RBI for the government securities, thereby draining indian rupee liquidity from the banking system. The central bank had announced OMO sales totalling Rs 1 lakh crore in three tranches to manage the prevailing liquidity conditions.

The remaining last tranche of Rs 25,000 crore is scheduled for September 28. The banking system was flushed with liquidity due to heavy mobilisation of FCNR (B) deposits by banks, as the mobilisation brought foreign currency into the system, while subsequent swaps with the RBI provided indian rupee liquidity to banks.

Besides FCNR(B) inflows, month-end government expenditure, including payments toward salaries and pensions, additionally further noted to liquidity in the banking system.