RBI Sells Rs 24,820 Crore in Government Securities in Second Tranche of Liquidity Absorption

The Reserve Bank of India (RBI) concluded its second tranche of Open Market Operation (OMO) sales on September 21, 2026, accepting bids worth Rs 24,820 crore against a notified aggregate amount of Rs 25,000 crore. The sale forms part of the central bank’s broader plan to drain Rs 1 lakh crore of durable surplus liquidity from the Indian banking system across three tranches.

The multi-security auction drew strong demand in medium- to long-tenor papers, with the central bank accepting yields ranging between 6.1320% and 7.0083%. However, the RBI exercised discretion by rejecting all bids for the shortest paper on offer, the 8.28% GS 2027, signalling that bidders' yield expectations for short-dated paper diverged from the central bank's comfort range.

Tranche Auction Results and Acceptances:

• 7.17% GS 2028: The RBI accepted Rs 180 crore at a cut-off price of Rs 101.26 and a cut-off yield of 6.1320%.
• 6.75% GS 2029: The central bank accepted Rs 2,300 crore at a cut-off price of Rs 100.17 and a cut-off yield of 6.6862%.
• 7.17% GS 2030: A total of Rs 2,250 crore was accepted at a cut-off price of Rs 101.23 and a cut-off yield of 6.7740%.
• 6.10% GS 2031: The paper witnessed the highest demand of the auction, with Rs 11,512 crore accepted at a cut-off price of Rs 96.86 and a cut-off yield of 6.8753%.
• 7.95% GS 2032: The central bank accepted Rs 8,758 crore at a cut-off price of Rs 104.50 and a cut-off yield of 7.0083%.
• 8.28% GS 2027: No bids were accepted.

Liquidity Overhang Drives RBI Action

The aggressive OMO sales follow a massive surge in systemic liquidity in India’s banking sector. A major driver behind the excess cash was the sharp mobilisation of Foreign Currency Non-Resident [Bank], or FCNR(B), deposits by commercial banks. The subsequent dollar-rupee swap operations with the central bank, alongside regular government expenditure, released substantial rupee liquidity into the financial system, pushing the liquidity surplus well above Rs 7 lakh crore.

This substantial liquidity overhang softened money market rates, with the Weighted Average Call Rate (WACR)—the RBI's operating target—drifting near 5.02% to 5.05%, significantly below the 5.25% policy repo rate. By conducting OMO sales, the central bank aims to withdraw durable liquidity and anchor overnight interbank rates firmly around the policy benchmark without resorting to blunt instruments like Cash Reserve Ratio (CRR) hikes.

Path Ahead for the Debt Market

The completion of this auction follows the RBI's initial OMO sale on September 17, 2026, where the central bank absorbed the entire notified sum of Rs 50,000 crore. With Rs 74,820 crore sucked out through the first two tranches, the RBI is scheduled to conduct its third and final OMO sale auction of Rs 25,000 crore on September 28, 2026.

For fixed-income investors and treasury desks, the selective absorption pattern highlights the central bank’s resistance to paying excessive yield premiums while managing the supply overhang. While the heavy absorption has exerted slight upward pressure on benchmark yields, market participants expect call money rates to gradually realign with the policy rate as systemic liquidity tightens into the final leg of the operation.

Tags: Reserve Bank of India Indian Bond Market Government Securities Banking System Liquidity Monetary Policy