The Indian banking system recently experienced a liquidity deficit of ₹2 lakh crore, with an average deficit of ₹1.5 lakh crore as of January, the RBI data shows. To address this deficit, the Reserve Bank of India injected around ₹40,000 crore into the banking system.
The RBI used bids worth ₹30,760 from the overnight variable repo rate (VRR) auction and ₹9,892 crore from the government securities buyback window for funds. It accepted 61% of the notified amount from the VRR and 33% in the buyback and rejected bids at higher rates.
India’s central bank also conducted a 5-day VRR auction that started on January 15, 2025, along with a 14-day VRR auction that began on January 10, 2025. This is seen as the reason for tepid demand.
The principal economist at HDFC Bank, Sakshi Gupta, said, “There are 5-day and 14-day VRR auctions in the system. We must look at the daily VRR auctions from a duration perspective. Today, there must be comfortable liquidity with some banks; hence, they did not see the need to borrow. Tomorrow, there will be another auction where these banks may need funds.”
The banker’s bank (RBI) of India began conducting buyback auctions on May 9, of this fiscal year. Since then, RBI has conducted 8 such auctions. Before this, RBI conducted buyback auctions 6 years ago.