Banks placed funds amounting to ₹84,975 crore at RBI’s seven-day variable rate reverse repo (VRRR) auction on Friday against the notified amount of ₹1 lakh crore.

The auction came in a bid to absorb the banking system’s surplus liquidity, which stood at ₹2,78,051 crore as on June 26th. The central bank accepted the funds from banks at the cut-off rate of 5.49 per cent, with the weighted average rate working out to 5.45 per cent.

Surplus liquidity

VRRR auctions are aimed at absorbing surplus liquidity in the banking system and ensuring that overnight call money rate stays closer to the repo rate.

In his last bi-monthly monetary policy statement on June 6th, Governor Sanjay Malhotra observed that a total amount of ₹9.5 lakh crore of durable liquidity was injected into the banking system since January.

As a result, after remaining in deficit since mid-December, liquidity conditions transitioned to surplus at the end of March. This is also evident from the tepid response to daily VRR (variable rate repo) auctions and high SDF (standing deposit facility) balances – the average daily balance during April-May amounted to ₹2.0 lakh crore.

“Reflecting the improvement in liquidity conditions, the weighted average call rate (WACR) – the operating target of monetary policy – traded at the lower end of the LAF (liquidity adjustment facility) corridor since the last policy.

“The comfortable liquidity surplus in the banking system has further reinforced transmission of policy repo rate cuts to short term rates. However, we are yet to see a perceptible transmission in the credit market segment, though we must keep in mind that it happens with some lag,” Malhotra then said.

Published on June 27, 2025