The Reserve Bank of India (RBI) received bids worth Rs 2.77 trillion against the notified amount of Rs 1 trillion from banks at the seven-day variable rate repo (VRR) auction on Friday. The central bank accepted bids at 6.68% cut off rate which is lower than MSF (Marginal Standing Facility) rate of 6.75%.
Through RBI’s MSF, banks can obtain liquidity overnight when interbank liquidity dries up. A repo auction is conducted by the central bank to inject liquidity into the banking system.High bids from banks have come despite easing of tight liquidity conditions, showing that some banks are still facing cash shortage.
Overall, the tight liquidity conditions have improved in the first week of this month. The liquidity deficit in the banking system has fallen to `1.1 trillion which till now was hovering around `2.5 trillion in the last week of December. Banks faced liquidity crunch in last month which prompted the RBI to conduct multiple VRR auctions. All the auction, which were aimed to provide liquidity to the banks, received high bids from the lenders.
The central bank had received bids worth `3 trillion against the notified amount of `1.25 trillion in the VRR auction held on December 29. Similarly, VRR auction held on December 22 had received robust response from the banks, where they submitted bids worth `4.25 trillion against the notified amount of `1.75 trillion. Experts see the liquidity situation to ease further in the coming weeks, aided by government spending.