The Reserve Bank of India (RBI) conducted Rs 25,000 crore overnight Variable Rate Repo (VRR) auction on Wednesday, July 8, as part of its ongoing efforts to manage short-term liquidity conditions in the banking system.

The auction will be held between 9:30 am and 10:00 am under the Liquidity Adjustment Facility (LAF). Funds borrowed by banks through this auction will mature on July 9, the central bank said in a notification.

Key Highlights

• RBI to conduct Rs 25,000 crore overnight VRR auction on July 8 to manage banking liquidity.
• Previous auction saw weak demand, with just Rs 1,135 crore bid against Rs 50,000 crore notified.

A Variable Rate Repo (VRR) auction allows banks to borrow funds from the RBI for a short period by pledging government securities as collateral. Unlike fixed-rate repo operations, banks bid for funds at interest rates determined through the auction process itself, making it a flexible tool the central bank uses to fine-tune liquidity in the financial system based on prevailing conditions.

The latest operation comes even as liquidity in the banking system remains comfortable. According to RBI data, surplus liquidity stood at around Rs 1.19 lakh crore as of July 6, suggesting banks currently have adequate funds on hand.

Also Read: RBI Announces Rs 1 Lakh Crore VRR Auction Amid Liquidity Crunch

The previous overnight VRR auction, held on July 7, saw weak demand from banks. Against a notified amount of Rs 50,000 crore, the RBI received bids worth just Rs 1,135 crore - a sign of the ample liquidity already present in the system. The central bank accepted the entire bid amount at a cut-off and weighted average rate of 5.26%.

RBI's Sustained Liquidity Support Since June

Since June, the RBI has injected more than Rs 6 lakh crore of short-term liquidity through overnight and seven-day VRR auctions, underscoring its continued efforts to ensure adequate funds remain available in the banking system even as demand at individual auctions has occasionally been muted.