RBI's liquidity mop-up auction falls short as banks show muted participation

The Reserve Bank of India conducted a 29-day variable rate reverse repo auction as part of its liquidity management strategy following recent rate hikes. However, the auction underperformed significantly, with banks parking just ₹79,655 crore against the anticipated ₹2 lakh crore target.

The shortfall reflects tepid participation from banks, which the RBI attributed partly to the availability of daily VRRR (variable rate reverse repo) options that offer more flexibility. The central bank had permitted early fund withdrawal to encourage participation, but the measure failed to generate the expected response.

The wider liquidity context shows inter-bank surplus liquidity stands at ₹4.24 lakh crore, underscoring persistent challenges in monetary transmission. The RBI has been attempting to manage excess liquidity in the system through various tools, but banks' preference for shorter-tenure instruments continues to complicate these efforts.