The Reserve Bank of India on Wednesday rejected all bids received for treasury bills at auction, as investors sought yields that were 0.05–0.10 percentage points higher than those accepted in previous auctions, amid tight liquidity conditions in the banking system.
This marks the second such instance in over 13 months. The last time the RBI had turned down bids was on February 21, 2025, when it rejected offers for 91-day and 182-day treasury bills.
“Tight liquidity in the banking system has led investors to demand 0.05–0.10 per cent higher cut-off yields at the auction, which the RBI chose not to accept,” said Balasubramanian R, head of treasury at Dhanlaxmi Bank.
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Treasury bills, issued by the Government of India, are short-term money market instruments that function as promissory notes, ensuring repayment at a future date. These instruments are typically subscribed to by banks, primary dealers, retail investors and institutional participants.
T-bills have maturities of up to 364 days and are issued at a discount to their face value, without offering periodic interest payments. Over the past three weeks, cut-off yields on treasury bills have been rising steadily—by around 0.03 percentage points for the 91-day and 182-day tenures, and by about 0.06 percentage points for the 364-day tenor—indicating persistent tightness in systemic liquidity.
Liquidity conditions have been under pressure in recent weeks due to outflows linked to advance tax and goods and services tax (GST) payments. To address this, the RBI has injected short-term liquidity into the system through variable rate repo (VRR) auctions, as the banking system moved into a deficit.
The RBI has infused approximately ₹2.08 lakh crore into the system through VRR auctions across multiple tenures. Market participants expect the RBI to conduct additional VRR auctions in the coming days to further ease liquidity pressures and stabilise short-term interest rates.
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