Banks bid ₹2.11 lakh crore to park cash at the RBI on 5 October, so it calls a second same-day auction
Victoria Shinder2 min readThe Reserve Bank of India drained a large amount of surplus cash from the banking system on Monday 5 October through overnight variable rate reverse repo (VRRR) operations under its liquidity adjustment facility, according to two press releases issued that morning.
The first auction. The RBI notified a one-day VRRR of ₹2,00,000 crore (₹2 lakh crore). Banks offered ₹2,10,688 crore, more than the notified amount, and the central bank accepted ₹2,00,050 crore. The cut-off rate and the weighted average rate were both 5.24%, and offers at the cut-off rate were accepted partially, at 94.36%.
A second operation. On a review of current and evolving liquidity conditions, the RBI then announced a second overnight VRRR on the same day for a notified amount of ₹50,000 crore, with the bidding window from 11:30 to 12:00 and reversal on Tuesday 6 October. The operational guidelines remain those of February 2020.
How it works. In a variable rate reverse repo, banks place surplus funds with the RBI against government securities and bid the rate they accept; the RBI sets the cut-off. Operations of this kind absorb liquidity that would otherwise push overnight market rates down towards the floor of the policy corridor.
What the releases do not say. Neither release quantifies the total liquidity surplus or explains its source, and they give no signal about policy rates. The bids above the notified amount show that banks had more spare cash to place than the RBI's first operation absorbed, which is consistent with the decision to add a second auction.
What it means
The operations show the RBI actively managing a cash surplus at the start of the month, keeping overnight rates aligned with its policy settings through daily fine-tuning rather than through a change in rates. Whether a second same-day auction becomes routine will show how persistent the surplus is.