RBI to drain Rs 1 lakh crore as VRRR auctions fail to absorb liquidity
The Reserve Bank of India will drain Rs 1 lakh crore through bond sales this month after VRRR auctions failed to absorb excess liquidity. The move follows dollar inflows, with Governor Sanjay Malhotra signalling multiple tools to manage surplus funds.
The Reserve Bank of India plans to remove Rs 1 lakh crore from the inter-bank market in September as variable rate reverse repo auctions failed to absorb the surplus liquidity. The central bank will conduct open market operations (OMO) sales of government securities in three tranches: Rs 50,000 crore on September 17, followed by two more sales of Rs 25,000 crore each on September 21 and September 28.
The excess liquidity stems from dollar-rupee swaps to absorb $137 billion inflows from banks in India. RBI Governor Sanjay Malhotra stated that the central bank may use a combination of tools to absorb excess liquidity, as VRRR auctions have proven ineffective. So far, VRRR auctions have yielded only Rs 60,449 crore against a target of Rs 5 lakh crore.
RBI will also use dollar-rupee sell/buy swaps as an additional tool to drain liquidity. Priority sector advances funded by fresh overseas deposits and certain renewals will be excluded from adjusted net bank credit calculations. Federal Bank intends to raise $500 million through a medium-term note program, and the Insurance Regulatory & Development Authority penalized IndusInd Bank Rs 1 crore for audit observations.
RBI also fined Union Bank of India Rs 1.34 lakh for currency chest deficiencies and Asset Care & Reconstruction Enterprise Rs 27.30 lakh for non-compliance with income recognition provisions.
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