RBI conducts 2-day reverse repo auctions worth Rs 1.20 L cr

By: | Published: April 5, 2016 1:09 AM

The Reserve Bank of India (RBI) on Saturday conducted reverse repo auctions worth `1.20 lakh crore — the highest ever single day reverse repo done since December 2009.

The Reserve Bank of India (RBI) on Saturday conducted reverse repo auctions worth `1.20 lakh crore — the highest ever single day reverse repo done since December 2009.

Data from the RBI shows that the central bank received 67 bids for a total amount of `1.20 lakh crore in two-day reverse repo auctions conducted on Saturday evening.

In a fixed-rate reverse repo operation, banks buy securities from the RBI to park their surplus funds with the central bank at a rate of 5.75% — the current reverse repo rate. The central bank conducts reverse repo auctions in order to remove surplus liquidity from the system and to keep the overnight rates closer to the repo rate. The reverse repo rate stands 100 basis points below the current repo rate of 6.75%.

Bankers attribute this large reverse repo quantum to the excess availablity of funds with banks at the beginning of the fiscal year.

“There are huge amount of advance tax inflows into the banking system towards the fiscal end. Moreover, corporates also tend to clear their liabilities as they do not want to carry forward that into the new fiscal year. Some companies which have adequate cash surplus also tend to deploy them for some days. As a result, banks have surplus amount of liquidity towards the beginning of the year,” said an executive working in a treasury of a public sector bank.

Money markets remain closed on Saturday, and as a result, additional avenues to deploy funds at more attractive rates were also not available.

“Money markets were closed on Saturday and because March had just come to an end, there must be a large amount of surplus with the banks. As a result, banks must have parked this excess money with the RBI on Saturday which is reflected in the reverse repo auctions quantum,” said Lakshmi Iyer, chief investment officer at Kotak AMC.

The last time such a large quantum of reverse repo operation was conducted was in December 2009 when a single day reverse repo quantum stood at `1.25 lakh crore.

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