RBI’s 30-day VRRR auction gets tepid response from banks

FILE PHOTO: The RBI received ₹2.59 lakh crore in bids for its 30-day VRRR auction against ₹7 lakh crore notified, amid surplus banking-system liquidity of around ₹10.73 lakh crore.
| Photo Credit:
KAREN DIAS

The Reserve Bank of India’s 30-day variable rate reverse repo (VRRR) auction received a modest response from banks, with bids falling well below the notified amount even as the entire banking system faces a significant surplus of liquid funds.

Key Takeaways

• RBI’s 30-day VRRR auction drew a modest Rs 2.59 lakh crore in bids against Rs 7 lakh crore notified.
• The weak response came despite banking-system liquidity surplus of around Rs 10.73 lakh crore.
• A VRRR auction is a monetary tool central banks use to absorb excess cash from the financial system.
• The tepid uptake suggests banks are holding onto liquidity rather than parking it in RBI’s reverse-repo facility.

A VRRR auction serves as a monetary policy instrument designed by central banks to draw down excess cash currently circulating within the financial system.

In this particular instance, the RBI secured Rs 2,59,276 crore in bids for the 30-day VRRR programme—substantially lower than the Rs 7 lakh crore that had been requested. Despite this comparatively weak auction performance, the overall liquidity situation across the banking sector remains robust.

RBI announces overnight VRRR auction

To further absorb remaining excess liquidity, the central bank also launched an additional overnight VRRR auction worth Rs 5 lakh crore on a Sunday morning. The trading period ran from 11:00 am to 11:30 am.

Currently, estimates indicate that the banking system stands in a clear surplus of approximately Rs 10.73 lakh crore, providing ample room for such balance sheet adjustments.

Special FCNR(B) inflows swell banking liquidity

The Reserve Bank has intensified its balance sheet activities as the banking sector has experienced substantial fund inflows driven primarily by the successful operation of the FCNR(B) deposit scheme.

According to official figures, the RBI has mobilised US$136.38 billion up to August 31, comprising US$127.23 billion from FCNR(B) deposits, US$5.26 billion through Outstanding Foreign Currency Bills (OFCBs), and US$3.89 billion via External Commercial Borrowings (ECBs). This demonstrates a notable contribution from special forex measures.

Notably, the FCNR(B) window was closed prior to schedule on August 31 owing to the exceptionally strong demand responses. In contrast, the external funding channels—the ECB and OFCB routes—stay operational through December 31, continuing to attract substantial inflows.

These mobilized foreign credits have introduced additional currency into the banking framework, while subsequent swap arrangements with the RBI converted these positions into domestic rupee liquidity for commercial banks.

RBI steps up VRRR operations

In line with prevailing repo-rate conditions, the central bank has executed a series of VRRR auctions throughout August and into September, covering maturity durations from overnight periods extending up to two weeks.

Published on September 7, 2026