The Reserve Bank of India’s move to absorb excess liquidity from the banking system got a lukewarm response from the lenders. The banking regulator received bids worth Rs 9,500 crore from banks against the notified amount of Rs 1 trillion at the variable rate reverse repo (VRRR) auction held on Friday, reflecting reluctance from the lenders to parking funds with the central bank.
“Banks are cautious on blocking their funds for two weeks in this 14-day VRRR auction. Lenders are also careful because GST payments are also due next week,” head of treasury of a public sector bank told FE. The RBI has resumed conducting VRRR auctions after liquidity in the banking system has returned to surplus in July. Liquidity surplus stood at Rs 1.3 trillion on Thursday and Rs 1.07 trillion on Wednesday.
To suck out the excess liquidity, the RBI has conducted multiple VRRR auctions. The recent VRRR auction results show that banks have been hesitant in parking money with the RBI. In the VRRR auction held on July 10, banks placed bid worth Rs 10,770 crore against notified amount of Rs 50,000 crore.
Banks had faced tight liquidity in May and June. Lenders faced cash squeeze in May due to lower government spending because of general elections. The deficit stayed above the Rs 1-trillion mark in May, peaking at Rs 2.32 trillion on May 23.