The Reserve Bank of India (RBI) conducted two back-to-back variable rate repo (VRR) auctions on Monday to ease liquidity tightness in the banking system.
The central bank had conducted two VRR auctions last Friday too.
At the first 4-day VRR auction, the RBI received bids from banks to draw down funds aggregating ₹1,23,310 crore against the notified amount of ₹25,000 crore. The central bank allotted funds amounting to ₹25,007 crore at a weighted average rate of 6.71 per cent.
At the second 4-day VRR auction, the RBI received bids from banks to draw down funds aggregating ₹97,280 crore against the notified amount of ₹25,000 crore. The central bank allotted funds amounting to ₹25,004 crore at a weighted average rate of 6.68 per cent.
Liquidity deficit
Market players say heavy demand for funds at the first VRR auction would have prompted the RBI to conduct a second one.
As of February 11, the overall liquidity deficit in the banking system was at ₹193,490 crore, per RBI date.
“The liquidity deficit has increased since the last policy in December 2023. Net LAF (liquidity adjustment facility) has remained in the deficit mode since mid-September 2023, with the system liquidity deficit at ₹1.5-lakh crore and an average of ₹1.8-lakh crore post-December 2023 policy.
“The RBI has been actively managing liquidity through main as also fine-tuning operations,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.
However, government surplus cash balances have increased to an average of ₹3.9-lakh crore post-December 2023 policy.
“With higher government surplus cash balances and reduced system liquidity, durable/core liquidity surplus...has come down moderately to ₹1.8-lakh crore,” he said.