In an indication of excess liquidity, the Reserve Bank of India received bids worth ₹58,525 crore from banks against the notified amount of ₹50,000 crore at the variable rate reverse repo (VRRR) auction held on Friday. This is the first time in many months when the bid amount was higher than the notified amount. RBI has been conducting VRRR auctions almost everyday to suck out liquidity but banks have been wary of parking funds.
“There is excess liquidity now therefore banks may be willing to park funds with RBI,” said a banker. Recently, RBI has been conducting two VRRR auctions on the same day. During the past few months banks had turned reluctant to park their funds with the RBI for a longer tenure in the variable rate reverse repo auctions. The shift could indicate that RBI may conduct more VRRR auctions in the coming days.
According to Crisil, the surplus in systemic liquidity increased in October with the RBI net absorbing ₹1.5 lakh crore (0.6per cent of net demand and time liabilities, or NDTL) compared with ₹1.01 lakh crore (0.4per cent of NDTL) in September. Deposit growth outpaced credit growth during the month, leading to the higher surplus. The RBI reduced the sale of government securities (G-secs) drastically through open market operations to ₹20 crore in October from ₹5,815 crore in the previous month .