Banks bid 3.2 times against notified amount of Rs 50,000 cr at VRR auction

Banks submitted bids worth Rs 1.6 trillion, around 3.2 times against the notified amount of Rs 50,000 crore, at the two-day Variable Rate Reverse Repo (VRR) auction conducted by the Reserve Bank of India (RBI) on Wednesday.

This came a day after the liquidity deficit in the banking system widened to Rs 2.7 trillion.

During the most recent VRR auction conducted on December 22, bids amounted to 2.5 times the notified amount. On December 15, a seven-day VRR auction received bids 2.7 times the notified amount, marking the RBI’s re-entry into such auctions after six months.

Market participants speculate that this might be the last VRR auction conducted by the central bank as the liquidity condition is expected to improve in a few days due to government spending.

“This should be the last VRR by the RBI because goods and services tax (GST) and advanced tax outflows are already done, and government spending is expected starting Friday,” a dealer at a state-owned bank said. “We can’t be sure, but a two-day VRR confirms that the liquidity will improve from here,” he said.

The liquidity deficit in the banking system widened to more than Rs 2 trillion on December 18 due to advance tax outflows. It widened to Rs 2.5 trillion on the back of GST outflows, market participants said. Liquidity has remained largely in deficit mode in the current quarter.