Liquidity in the banking system is estimated to be in surplus of around ₹3.88 lakh crore as of October 8 | Photo Credit: FRANCIS MASCARENHAS

The Reserve Bank of India’s variable rate reverse repo (VRRR) auctions with longer maturities received a tepid response from banks for the second time in the week on Friday, despite surplus liquidity in the banking system,

The lenders appear to prefer parking funds with the central bank for shorter durations, as seen through the responses to recent auctions.

The RBI received bids worth ₹18,170 crore against the notified amount of ₹1.50 lakh crore in its 10-day VRRR auction on Friday. The central bank accepted the entire bid amount at a cut-off and weighted average rate of 5.49 per cent.

In contrast, the three-day VRRR auction attracted bids worth ₹1,39,847 crore against the notified amount of ₹1.50 lakh crore, indicating stronger participation in shorter-tenure liquidity absorption operations.

On October 8, the RBI's 29-day VRRR auction also received a tepid response, while its one-day VRRR auction attracted stronger participation.

The contrasting responses across maturities suggest banks are more willing to park surplus funds with the central bank for shorter periods than commit them for longer tenures.

Currently, liquidity in the banking system is estimated to be in surplus of around ₹3.88 lakh crore as of October 8, according to RBI data.

The RBI, in the last two months, has undertaken several VRRR auctions to absorb excess surplus liquidity from the banking system and align the overnight money market rates to the repo rate.

The banking system was flush with liquidity due to heavy mobilisation of FCNR (B) deposits by banks, as the mobilisation brought foreign currency into the system, while 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.

On October 6, RBI Governor Sanjay Malhotra, during the post-monetary policy press conference, said the huge banking system liquidity is to be absorbed within the current financial year through various means such as currency leakage, the Reserve Bank's liquidity operations, and banks' reserve requirements.

Published on October 9, 2026