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RBI VRRR Auction: ₹7 Lakh Crore on Offer, But Banks Bid Only ₹2.59 Lakh Crore—Why?

Posted on 7th Sep 2026 02:55 pm by rohit kumar

The Reserve Bank of India's 30-day Variable Rate Reverse Repo (VRRR) auction received a relatively weak response from banks, despite substantial surplus liquidity in the banking system.

 

Against the notified amount of ₹7 lakh crore, banks submitted bids worth only ₹2,59,276 crore. The RBI accepted the bids at a cut-off and weighted-average rate of 5.24%, according to the central bank's notification.

 

The limited participation comes at a time when the banking system is estimated to have surplus liquidity of around ₹10.73 lakh crore, putting the RBI's liquidity-management operations in focus.

 

What is the RBI's VRRR auction?

 

A Variable Rate Reverse Repo (VRRR) auction is one of the tools available to the RBI to absorb surplus liquidity from the banking system.

 

Under the operation, banks can park surplus funds with the central bank for a specified period at an auction-determined rate. This allows the RBI to manage liquidity conditions while keeping money-market rates aligned with its monetary-policy stance.

 

In the latest 30-day operation, the RBI had announced a ₹7 lakh crore absorption target but received bids for only around ₹2.59 lakh crore.

 

RBI announces another ₹5 lakh crore VRRR auction

 

With significant surplus liquidity still present, the RBI also announced an overnight VRRR auction of ₹5 lakh crore.

 

The operation was scheduled between 11:00 am and 11:30 am on Monday, providing banks with another opportunity to park surplus funds with the central bank.

 

The move highlights the RBI's continued efforts to manage the large amount of liquidity currently available in the banking system.

 

Why is there so much liquidity in banks?

 

A major source of the recent liquidity surplus has been the strong inflow of foreign currency through special measures introduced by the RBI.

 

According to the figures cited in the report, around $136.38 billion had been mobilised through the special foreign-currency measures up to August 31.

 

This included approximately:

 

$127.23 billion through FCNR(B) deposits

$5.26 billion through OFCBs

$3.89 billion through ECBs

 

These foreign-currency inflows ultimately contributed to increased rupee liquidity in the banking system following transactions and swaps involving the RBI.

 

What happened to the FCNR(B) scheme?

 

The special FCNR(B) deposit window received a strong response and was subsequently closed on August 31, about a month earlier than initially planned.

 

Meanwhile, the special ECB/OFCB facility is scheduled to remain available until December 31.

 

The large foreign-currency inflows generated through these measures have contributed to the liquidity surplus that the RBI is now seeking to manage through market operations.

 

Why did banks bid less than the RBI's target?

 

The gap between the RBI's ₹7 lakh crore notified amount and the ₹2.59 lakh crore in bids indicates that banks did not seek to park their entire surplus funds through the 30-day VRRR operation.

 

One possible factor is that banks may prefer to retain flexibility over their surplus funds rather than lock them into a longer-duration operation. Banks can also assess their immediate liquidity requirements and alternative avenues for deploying funds.

 

Therefore, the weak response should not automatically be interpreted as a lack of liquidity. In fact, the banking system continues to hold substantial surplus funds.

 

RBI intensifies liquidity management

 

The RBI has been conducting a series of VRRR operations as it seeks to absorb surplus liquidity and keep short-term money-market conditions aligned with its policy framework.

 

According to the figures cited in the report, the central bank has conducted 32 VRRR auctions during August and September, with maturities ranging from overnight operations to 14 days.

 

The latest 30-day operation represents another step in the RBI's effort to manage excess liquidity.

 

What does this mean for the banking system?

 

The large liquidity surplus has important implications for money-market conditions and the transmission of monetary policy.

 

By absorbing excess funds, the RBI can influence short-term liquidity conditions and help maintain money-market rates close to its desired policy corridor.

 

For banks, however, the decision to participate in VRRR auctions depends on factors such as liquidity requirements, expected returns and the opportunity cost of locking funds for a specified period.

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