RBI pulls over Rs 6 lakh crore after liquidity hits a record

The Reserve Bank of India absorbed more than Rs 6 lakh crore on Monday through reverse-repo auctions, a day after banking-system liquidity surplus hit a record Rs 11.6 lakh crore, Reuters reported via The Business Times. Fortune India put Monday's haul above Rs 6.02 lakh crore across two VRRR operations.

Banks parked Rs 2.59 lakh crore in a 30-day variable-rate reverse repo. The RBI had notified a Rs 7 lakh crore 30-day auction. Overnight, offers of Rs 3.53 lakh crore came in. Five traders told Reuters the longer auction saw weak participation, citing technical glitches. A person familiar with the process said bids went through e-Kuber without a glitch.

The surplus was fed by special foreign-currency schemes that mobilised about $136.38 billion by 31 August, including $127.23 billion in FCNR(B) deposits. Converting that foreign cash into rupees left banks with more domestic liquidity than they needed. Overnight call rates had slipped below the policy rate.

The RBI's total liquidity withdrawals have topped Rs 8.5 lakh crore. Those funds return as the operations mature. The central bank has run dozens of VRRR auctions since August, mostly overnight to 14 days, before stretching this one to 30 days.

Too much cash in the system softens money-market rates and can feed inflation and asset prices. The RBI is trying to drain the surplus without slamming rates higher. The 30-day tenor is the signal that overnight mop-ups were not enough.

For anyone watching deposits, loans, and the next rate decision, Monday's numbers matter more than the auction notice. Weak take-up on the long auction also tells you banks still want flexibility, not a month locked away.

Treasury desks expect another longer reverse repo later this week if the surplus stays fat. IDFC First Bank's Gaura Sen Gupta has pointed to market stabilisation bonds and sell-buy swaps as less disruptive tools if the RBI needs more firepower.