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Informist, Friday, Sept. 4, 2026

 

--RBI to hold 30-day VRRR auction for INR 7 tln 0930-1000 IST Mon

--RBI: 30-day VRRR auction to have option of premature reversal 

--RBI: To allow partial premature reversal in 30-day VRRR auction 

--RBI: Bks can seek premature reversal in 30-day VRRR 2 days before tenure end 

 

MUMBAI – The Reserve Bank of India Friday announced a 30-day variable rate reverse repo operation for INR 7 trillion Monday to drain the record-high surplus liquidity in the banking system. Taking a leaf out of its liquidity management playbook used earlier in the year, the regulator has given banks participating in the VRRR the option of premature reversal of funds lent through the operation. This is similar to the prepayment option it had allowed in the 90-day variable rate repo auctions conducted in January to infuse liquidity into the banking system. The RBI has also allowed banks participating in the 30-day VRRR the option of partial premature reversal.

 

Market participants had expected the central bank to announce measures to drain durable liquidity from the banking system Friday, after the RBI's net liquidity absorption -- a proxy for the banking system liquidity surplus -- surged this week to over INR 10 trillion Thursday. This is the highest level of liquidity surplus since the RBI started compiling the data in January 2019.

 

The VRRR will be reversed Oct. 7, the day the Monetary Policy Committee of the RBI is due to make its policy decision known. Banks can request for premature reversal of lent funds at least two working days prior to the original date of reversal, the RBI said. Such requests for premature reversal can be placed only through the e-Kuber portal between 0900 IST and 1700 IST on working days in Mumbai, the release said. These requests also have to be intimated to the RBI's Financial Markets Operations Department via email, it said. "The settlement of premature reversal will take place at the 'start of day' on the next working day following the date of placement of request," it said.

 

On the day of reversal, the current account of the participant with the RBI will be credited with the principal amount and accrued interest for the lent period, the central bank said. The securities offered as collateral by the RBI will be debited from the participant's reverse repo constituent subsidiary general ledger accounts. 

 

The VRRR auction will be conducted on the RBI's core banking solution platform e-Kuber. Successful offers will be accepted at their respective offer rates. Offers at or above the repo rate of 5.25% will be rejected, the RBI said. The RBI Friday conducted two three-day VRRRs taking offers amounting to INR 6.02 trillion.

 

The weighted average call rate hit 4.94% Friday, the lowest since Aug 4, 2022, barring Saturdays, as the liquidity surplus hit 3.8% of banks' net demand and time liabilities. The RBI's choice of tool used to drain liquidity is largely seen as a relief for money markets, as several traders had expected permanent measures Friday such as incremental hikes in the cash reserve ratio or sale of government bonds through open market operations.

 

Some traders had expected such a long-term VRRR with the option for premature reversal while others had said participation at such an operation was unlikely to be strong and so did not expect the measure. Traders do expect that the central bank will have to use an array of measures to drain the hefty surplus, and that it could introduce more measures at the Monetary Policy Committee meeting early October as surplus liquidity is likely to remain high in spite of tax outflows later this month, dealers said.  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Cassandra Carvalho

Edited by Rajeev Pai

 

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