RBI to conduct ₹25,000 crore overnight Variable Rate Repo auction today: What it means for banks

The Reserve Bank of India (RBI) will conduct a ₹25,000 crore overnight Variable Rate Repo (VRR) auction on Wednesday, July 8, to manage short-term liquidity conditions in the banking system.

The auction will be held between 9:30 am and 10:00 am under the Liquidity Adjustment Facility (LAF). Funds borrowed by banks through the auction will mature on July 9, the central bank said in a notification.

The RBI said it decided to conduct the auction

after reviewing "current and evolving liquidity conditions."

A Variable Rate Repo auction allows banks to borrow funds from the RBI for a short period by pledging government securities as collateral. Unlike fixed-rate repo operations, banks bid for funds at interest rates determined through the auction process. The tool helps the central bank fine-tune liquidity in the financial system.

The latest operation comes even as liquidity in the banking system remains comfortable. According to RBI data, surplus liquidity stood at around ₹1.19 lakh crore as of July 6.

The previous overnight VRR auction held on July 7 saw weak demand from banks. Against a notified amount of ₹50,000 crore, the RBI received bids worth only ₹1,135 crore, reflecting ample liquidity in the banking system. The central bank accepted the entire amount at a cut-off and weighted average rate of 5.26%.

Since June, the RBI has injected more than ₹6 lakh crore of short-term liquidity through overnight and seven-day VRR auctions to ensure adequate funds remain available in the banking system.

-With PTI inputs