The Reserve Bank of India executed a 29-day variable rate reverse repo auction on Thursday, attracting ₹79,655 crore in bids against a notified amount of ₹2 trillion. According to Banking Standard, the central bank accepted the entire amount offered at a cut-off and weighted average rate of 5.49 per cent. This contrasted sharply with the one-day VRRR auction, which received bids worth ₹1,60,664 crore for the same notified amount and was also fully accepted at the same rate. The latest auction was conducted between 9.30 am and 10 am on October 8, with the amount parked with the RBI scheduled for reversal on November 6. The decision to conduct the auction was taken after a review of the current and evolving liquidity conditions, as reported by the RBI. As per The Economic Times, the weak response to the long-term VRRR came despite the RBI allowing banks to withdraw funds on a two-day notice, with banks participating only if they had visibility of 30 days of surplus liquidity.
The latest auction results demonstrate a clear preference among banks for shorter-term liquidity absorption operations. On Friday, the RBI's 10-day VRRR auction received bids worth ₹18,170 crore against a notified amount of ₹1.50 lakh crore, while the three-day VRRR auction attracted bids worth ₹1,39,847 crore for the same amount. As reported by The Hindu BusinessLine, this contrasting response across maturities suggests banks are more willing to park surplus funds with the central bank for shorter periods than commit them for longer tenures. The weighted average call rate (WACR) was at 5.30 per cent on Thursday, against the previous close of 5.36 per cent. The RBI absorbed ₹1.61 lakh crore Thursday using the daily VRRR against a notified amount of ₹2 lakh crore.
Despite the tepid response, the auction occurred amid a huge surplus in banking system liquidity of around ₹3.88 lakh crore as of October 8, according to RBI data reported by The Hindu BusinessLine. The banking system was flush with liquidity due to heavy mobilisation of FCNR (B) deposits by banks, as the mobilisation brought foreign currency into the system, while subsequent swaps with the RBI provided rupee liquidity to banks. Additionally, month-end government expenditure, including payments toward salaries and pensions, also added to liquidity in the banking system. The ₹2 trillion notified amount is roughly 40% of the ₹3.88 lakh crore reported surplus, although the actual amount absorbed will depend on banks' bids in the auction. As per The Economic Times, the system liquidity stood at an average daily surplus of ₹5.9 lakh crore since early August 2026, following the RBI's dedicated dollar mobilisation programme and dollar-rupee swap operations.
The RBI has introduced a premature reversal facility for participants in the 29-day VRRR auction, providing greater flexibility in liquidity management. As per the RBI announcement, participants can request premature reversal through the E-Kuber portal from 9 am to 5 pm on working days in Mumbai, with requests required at least two working days before the original date of reversal. Partial reversal of bids will also be permitted, and settlement will take place at the start of the next working day following the request date. On the date of reversal, participants' current account with the RBI will be credited with the principal amount and accrued interest for the period for which funds were parked with the RBI, while securities offered as collateral will be debited from the participant's reverse repo constituent SGL account.
The contrasting responses between different maturity auctions reflect banks' reluctance to park money with the RBI for longer tenure, as reported by Banking Standard. Market participants said the government's first 15-year bond auction in the second half of FY27, scheduled for Friday, would give a clearer indication of the yield at which the paper could be issued. The RBI could announce OMO sales after that auction, with dealers noting that the central bank will want to see where the 15-year clears before selling anything. As per The Hindu BusinessLine, RBI Governor Sanjay Malhotra Wednesday said that the surplus liquidity is expected to drain out by the end of the current fiscal, with the central bank using an appropriate mix of liquidity management tools and striving to align the weighted average call rate (WACR) with the policy repo rate. A money market trader at a state-owned bank noted that liquidity would gradually drain through forex operations and currency circulation, with festive season demand and harvesting cycles potentially absorbing ₹2-3 lakh crore in the near term up to January.
