RBI Absorbs ₹2.40 Lakh Crore via VRRR Auction to Drain Banking System Surplus

The Reserve Bank of India (RBI) continued its aggressive liquidity management operations on Thursday by absorbing ₹2.40 lakh crore from the banking system through a Variable Rate Reverse Repo (VRRR) auction.

According to central bank data, the auction received bids totaling ₹2,39,959 crore, all of which were accepted in full. The cut-off rate and the weighted average rate for the operation were set at 5.24%.

Sustained Liquidity Overhang

The auction comes amid an extended spell of substantial liquidity surplus across Indian commercial banks. As of September 16, system-wide liquidity was estimated to be in surplus to the tune of ₹7.38 lakh crore, having previously scaled levels near ₹9.85 lakh crore.

This marks the latest in a string of active interventions by Mint Street. Just a day earlier, the RBI pulled ₹2.90 lakh crore out of the system across two separate VRRR windows:

• In the first auction, the central bank accepted ₹2,50,025 crore against a notified amount of ₹2.50 lakh crore at a cut-off rate of 5.24%.
• In the second auction, it fully absorbed all ₹40,302 crore offered by participating banks against an offered size of ₹1 lakh crore.

The repeated auctions are aimed at preventing call money and collateralized borrowing rates from softening significantly below the monetary policy policy corridor, ensuring proper transmission across short-term debt instruments.

Multi-Pronged Absorption via OMO Sales

To complement its short-term VRRR auctions, the RBI has also deployed durable liquidity extraction tools. The central bank recently scheduled Open Market Operation (OMO) sales of government securities worth a cumulative ₹1 lakh crore.

Schedule of OMO Sales:

• Tranche 1: ₹50,000 crore conducted on September 17.
• Tranche 2: ₹25,000 crore scheduled for September 21.
• Tranche 3: ₹25,000 crore scheduled for September 28.

Market Impact and Outlook

The combination of VRRR mopping and outright bond sales via OMO reflects the regulator's intent to actively guide overnight lending rates toward the repo rate rather than allowing surplus funds to dilute monetary policy targets.

For participants in Indian fixed-income and mutual fund markets, the absorption operations are likely to keep short-term yields, including Treasury Bills and Commercial Paper (CP) rates, firm in the near term while preventing excessive volatility in short-dated borrowing costs.

Tags: Reserve Bank of India Banking Sector Money Markets VRRR Government Securities