The Reserve Bank of India (RBI) on Friday absorbed Rs 2.23 lakh crore from the banking system amid surplus liquidity by conducting a variable rate reverse repo (VRRR) auction.

The central bank received bids worth Rs 2,22,629 crore, which it accepted fully, for a notified amount of Rs 2.25 lakh crore. The amount was accepted at a weighted average rate of 5.24 per cent, the RBI said in a release.

The RBI has been conducting VRRR auctions since last month in order to absorb excess liquidity from the banking system and align the overnight money market rates to the repo rate.

As of September 17, liquidity in the banking system is estimated to be in surplus of around Rs 6.94 lakh crore, as per RBI data.

As part of the liquidity adjustment strategy, the central bank on Thursday sold government securities worth Rs 50,000 crore through Open Market Operations (OMO).

The remaining two tranches of G-sec sales of Rs 25,000 crore each are scheduled for September 21 and September 28.

The banking system was flushed with funds due to heavy mobilisation of foreign currency non-resident (bank) or FCNR (B) deposits, and subsequent swaps with the RBI provided rupee liquidity to banks.

Besides FCNR(B) inflows, month-end government expenditure, including payments toward salaries and pensions, also added to liquidity in the banking system.