The Reserve Bank of India on Tuesday injected Rs 48,014 crore in transient liquidity into the banking system through a seven-day variable rate repo (VRR) auction. These funds were infused at a cut-off rate and weighted average rate of 5.26 per cent, the bank said in a statement.
The liquidity injected was much lower than the notified amount of Rs 1.50 lakh crore, despite a sharp drop in surplus liquidity in the banking system due to advance tax payments.
Under the VRR auction, the central bank auctions funds at variable interest rates for a short period, allowing banks to bid for a certain amount. Liquidity in the banking system is expected to tighten further after outflows to pay the goods and services tax (GST), scheduled later this week.
Current liquidity in banking
Currently, liquidity in the banking system is estimated to be in surplus of around Rs 75,483.63 crore as of March 16, sharply down from Rs 2.08 lakh crore as of March 15, before the advance tax payouts.
RBI has infused Rs 3.50 lakh crore of durable liquidity into the banking system through open market purchase (OMO) of government securities since January 2026. In the last few months, the RBI has been infusing liquidity into the banking system to keep overnight rates under control. This has led overnight rates to hover sharply below the repo rate.
Weak demand conditions
As per a Reuters report, Indian bankers said that banks had limited appetite for borrowing from the central bank’s seven-day cash infusion operation on Tuesday, despite a narrowing of liquidity surplus, underscoring the need for more flexible options, such as allowing prepayments.
The weak demand reflects a preference for very short-duration borrowing for greater flexibility. It signals that term funding, which is lending for longer than a day, is less attractive despite moderating cash surplus conditions.
This was evident in late January, when the RBI managed to infuse Rs 1.36 trillion in a 90-day window after allowing banks to repay early. That helped keep banking system liquidity above 1% of deposits over the past one-and-a-half months. Such comfortable liquidity is considered essential for smooth policy transmission.