RBI won't curtail VRR auctions, some banks still prefer the option, says governor Sanjay Malhotra

Reserve Bank of India

The Reserve Bank of India doesn’t want to curtail variable rate repo (VRR) auctions, as some banks prefer to borrow through the instrument, governor Sanjay Malhotra said on April 9.

The RBI wants banks to lend and borrow among themselves, so that it doesn’t have to do VRR auctions.

“One particular entity or a bank may need liquidity while the whole system is in surplus. We would like banks among themselves to lend and borrow, so that we don’t have to do VRR auctions. Some banks prefer to come to the RBI and this is why we don’t want to curtail that opportunity for them,” Malhotra said at the post-policy press conference.

VRR auctions continue even as banking system liquidity has improved and turned surplus.

Even after surplus liquidity, banks have been taking funds through VRR auctions.

According to the RBI’s data, banks borrowed Rs 6,012 crore on April 3 via VRR, Rs 12,419 crore on April 4, Rs 16,505 crore on April 7, Rs 23,515 crore on April 8, and Rs 19,295 crore on April 9.

In the last few days, the liquidity in the banking system has turned positive due to active management by the RBI via daily VRR auctions, normal or long tenure VRR auctions, open market operations (OMO) purchases of government securities, and USD/INR Buy/Sell swap auction.

The liquidity in the banking system has also improved due to government’s month-end spending on account of salaries, pensions and other expenditure.

Currently, the liquidity in the banking system is estimated to be in surplus of around Rs 1.33 lakh crore.

The central bank, as expected, cut the key repo rate by 25 basis points second time in a row, bringing it down to 6 percent. It had reduced the rate by 25 bps in February as well.