RBI absorbs Rs 71,971 crore via overnight VRRR auction

The Reserve Bank of India (RBI) on Tuesday absorbed `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 `71,971 crore, which it accepted fully, for a notified amount of `75,000 crore, according to an official release. The bids were accepted at a cut-off and weighted average rate of 5.24 per cent, the release said.

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

The central bank also conducted two open market operations (OMO) resulting in sales of government securities worth `50,000 crore on September 17 and `25,000 crore on September 21.
Under an OMO sale, banks and other investors pay the RBI for the government securities, thereby draining rupee liquidity from the banking system. The central bank had announced OMO sales totalling `1 lakh crore in three tranches to manage the prevailing liquidity conditions.

The remaining last tranche of `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 rupee liquidity to banks.

Besides FCNR(B) inflows, month-end Government expenditure, including payments toward salaries and pensions, also added to liquidity in the banking system.