The Reserve Bank of India conducted an additional three-day variable rate repo (VRR) auction of a notified amount of ₹50,000 crore on Monday, amid strong demand for funds from banks, according to money market dealers.
During the first VRR auction of the day, the central bank received bids exceeding the notified amount of ₹50,000 crore, prompting it to conduct another auction to meet the funding requirements of lenders.
The RBI received bids worth ₹57,281 crore in the first three-day VRR auction, against the notified amount of ₹50,000 crore. In the subsequent auction, it received bids worth ₹38,581 crore, with the cut-off rate set at 5.26 per cent, against a similar notified amount.
Market participants attributed the heightened demand to typical year-end liquidity pressures. “The oversubscription reflects tight liquidity conditions, largely driven by the March-end rush as banks shore up their balance sheets,” said a treasury official at a state-owned bank.
According to the latest data from the RBI, liquidity in the banking system stood at a surplus of ₹1.27 trillion as of Sunday. However, dealers noted that despite the surplus, frictional mismatches and tax outflows tend to create short-term funding needs.
“Even though system liquidity is in surplus, temporary factors such as tax payments and year-end adjustments are leading to intermittent demand for funds. Further, government month-end spending is expected to kick in from the first week of April,” said a money market dealer at a primary dealership.
The central bank has been actively deploying VRR auctions to manage transient liquidity. Additionally, the RBI has infused ₹3.5 trillion liquidity into the banking system through open market operations.
