Mumbai: The Reserve Bank of India (RBI) will conduct a 30-day Variable Rate Reverse Repo (VRRR) auction for Rs 7 lakh crore on September 7 as it steps up efforts to absorb surplus liquidity from the banking system.
According to an RBI notification, the auction will be conducted between 9.30 am and 10 am on Monday. The funds will be reversed on October 7.
Banking Liquidity Surplus At Rs 10.32 Lakh Crore
The RBI said the decision was taken after reviewing current and evolving liquidity conditions. Surplus liquidity in the banking system was estimated at around Rs 10.32 lakh crore as of September 3.
The central bank has intensified liquidity absorption measures following a sharp increase in funds available with banks.
On Friday, the RBI absorbed more than Rs 6.02 lakh crore through two VRRR auctions as liquidity remained at record-high levels.
Participants in the September 7 auction will also be allowed to seek premature reversal of funds, including partial reversal.
Such requests can be submitted through the E-Kuber portal between 9 am and 5 pm on working days in Mumbai. Settlement will take place at the start of the next working day after a request is made.
FCNR(B) Inflows Boost Rupee Liquidity
The rise in banking system liquidity follows strong foreign currency inflows under the RBI’s special forex measures.
These measures mobilised USD 136.38 billion by August 31. Of this, USD 127.23 billion came through FCNR(B) deposits, USD 5.26 billion through OFCBs and USD 3.89 billion through ECBs.
The FCNR(B) window was closed a month early on August 31 following a strong response. However, the ECB and OFCB facility will remain available until December 31.
Foreign currency mobilised through these routes entered the banking system, while subsequent swaps with the RBI added rupee liquidity.
To manage the large surplus and align overnight rates with the repo rate, the RBI has conducted 32 VRRR auctions since August, with maturities ranging from overnight to 14 days. The latest 30-day operation marks a longer liquidity absorption measure.
