Banks showed limited appetite for short-term liquidity at the Reserve Bank of India's (RBI) three-day Variable Rate Repo (VRR) auction conducted on Friday, reflecting subdued demand for funds despite the central bank's efforts to inject liquidity into the banking system.
Against the notified amount of Rs 1 lakh crore, the RBI received bids worth only Rs 16,750 crore from participating banks. The central bank accepted the entire bid amount at a cut-off rate and weighted average rate of 5.26 per cent.
The low participation in the auction came even as liquidity conditions in the banking system remained in surplus, though the overall surplus has moderated in recent days. Market participants said the muted response suggested that banks currently have limited need for additional short-term funding.
According to the latest RBI data, systemic liquidity surplus stood at approximately Rs 19,163.11 crore on June 18. While this represented a marginal improvement from the previous day, liquidity levels continued to remain relatively lower compared to earlier periods, indicating somewhat tighter conditions in the banking system.
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The subdued demand at the three-day VRR auction underscores the fact that banks are largely comfortable with their existing liquidity positions despite the RBI making funds available through repo operations.
Variable Rate Repo auctions are one of the RBI's key liquidity management tools and are used to inject short-term funds into the banking system. These operations help ensure adequate liquidity and keep overnight money market rates aligned with the central bank's policy rate corridor.
In recent days, the RBI has infused substantial liquidity into the financial system to ease temporary funding pressures and maintain stability in short-term interest rates. Through VRR auctions of varying maturities, the central bank has injected around Rs 1.89 lakh crore into the banking system.
Of the total amount infused, the RBI injected Rs 72,300 crore through two separate VRR auctions on Wednesday. Earlier, it had provided Rs 89,440 crore via a seven-day VRR auction conducted on June 16 and another Rs 28,220 crore through an overnight VRR auction held on June 15, according to data released by the central bank.
The continued liquidity support highlights the RBI's efforts to ensure smooth functioning of money markets, even as demand from banks for short-term funds remains relatively restrained.
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