The Reserve Bank of India (RBI) received just Rs 1,000 crore worth of bids for its 56-day term repo auctions, as against Rs 50,000 crore offered.
Through repo operations, the RBI injects liquidity into the banking system. The cut-off yield was 4 per cent, which is at par with the policy repo rate. The reason why there was so little interest for the auction is that the system is now flush with liquidity.
Banks parked in excess of Rs 6.40 trillion with the central bank on Thursday. Such high liquidity has also ensured that commercial papers of highly rated firms, even for a three-year tenure, are routinely getting raised below the repo rate, and in some cases, even below the reverse repo rate of 3.35 per cent.
However, not all banks have the same liquidity profile, and some deposit-deprived banks are most often than not in a liquidity deficit mode. For them, the term repo facility comes as a great rescue tool.