The under-subscription of the ₹2.5 lakh crore auction amount suggests that banks are reluctant to park large amounts for longer durations.
| Photo Credit:
REUTERS
The Reserve Bank of India (RBI) on Friday received bids amounting to ₹1.51 lakh crore for the 7-day Variable Rate Reverse Repo (VRRR) auction, against the notified amount of ₹2.5 lakh crore at a cut-off rate of 5.49 per cent, according to a statement.
The under-subscription of the ₹2.5 lakh crore auction amount suggests that banks are reluctant to park large amounts for longer durations. They seem to prefer shorter-term options such as 1-3 day VRRRs, alongside occasional participation in longer tenors, said experts.
“VRRRs will continue and will become a regular feature as long as the durable excess is within that ‘line in sand’ core excess (in the current neutral stance). Today’s tepid response is also due to the fact that it is a reporting Friday and two days of holiday ahead with new reserve maintenance period from tomorrow. Participants would play safe by lending overnight and take a more informed view from Monday. Mid-month tax flows can also act as a factor,” said RK Guru Murthy, Treasurer, Karnataka Bank.
Balancing act
According to Venkatakrishnan Srinivasan, founder at Rockfort Fincap LLP, given the persistently high surplus liquidity in the banking system, despite recent VRRR auctions, the impact of these operations on money markets has been negligible so far. The net liquidity in the banking system was in surplus of ₹3.15 lakh crore on Thursday, according to RBI data.
“The RBI’s move to raise the 7-day VRRR amount to ₹2.5 lakh crore from ₹1 lakh crore signals a growing unease with excess liquidity, which could risk stoking inflation even as it aids credit growth. While the RBI may be comfortable with maintaining some surplus liquidity to support lending and public spending, it appears keen to use short-term tools like VRRR to temporarily drain out the excess,” Srinivasan said.
Going ahead, market participants expect the RBI to maintain a flexible approach in adjusting both the size and tenor of VRRRs to fine-tune liquidity until a more sustainable balance is achieved.
More Like This
Published on July 11, 2025