RBI absorbs Rs 3.53 lakh crore as banking system sees surplus liquidity

The Reserve Bank of India absorbed over Rs 3.53 lakh crore through an overnight VRRR auction to drain excess banking-system liquidity. The operation comes amid strong FCNR(B) inflows, with the special forex swap facility attracting $73 billion in foreign exchange nflows.

Mumbai: The Reserve Bank of India (RBI) on Monday absorbed over Rs 3.53 lakh crore through an overnight Variable Rate Reverse Repo (VRRR) auction with a one-day tenor to drain excess liquidity from the banking system, according to a central bank statement.

While the notified amount for the reverse repo auction was Rs 5 lakh crore, the bids received amounted to Rs 3,53,390 crore. The RBI absorbed the entire amount, which works out to over 70 per cent of the notified sum. It accepted the full amount at a cut-off rate and weighted average rate of 5.24 per cent, the statement said.

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A VRRR auction is a monetary policy tool used by a central bank to absorb excess liquidity from the banking system and ensure financial stability in the economy.

The RBI has stepped up liquidity absorption operations as the banking system has been flooded with funds following large inflows through the special FCNR(B) deposit scheme.

The RBI’s special dollar-rupee forex swap facility for FCNR(B) deposits, Overseas Foreign Currency Borrowings (OFCB) and External Commercial Borrowings (ECB), launched on June 8 this year, has driven an unprecedented surge in foreign exchange inflows into the country, to the tune of $73 billion in less than 11 weeks since its launch.

FCNR(B) deposits alone accounted for $65.40 billion, underlining the overwhelming response of non-resident Indians to the scheme. The scheme’s success underscores the strength of the Indian diaspora, which has reposed faith in the Indian banking system by channelling savings into FCNR(B) deposits at a pace that has consistently exceeded expectations.

Having reached $73 billion in under 11 weeks, this stands out as the largest and fastest foreign-currency mobilisation exercise undertaken by India, comfortably surpassing the scale and pace of the RBI’s 2013 FCNR(B) swap scheme, which raised about $26 billion over roughly three months.

The response was strong enough for the RBI to advance the closure of the FCNR(B) window from September 30 to August 31, having already achieved its objective ahead of schedule.