Banking system liquidity surplus shrinks to ₹16,875 cr, lowest since Jan 22

Liquidity surplus narrows amid advance tax outflows and GST payments, while muted demand seen in RBI's VRR auctions and short-term borrowing shifts to TREPS market

The net liquidity surplus in the banking system fell to ₹16,875 crore on Thursday, the latest data by the Reserve Bank of India (RBI) showed, the lowest since January 22.

 

Even as there was tepid demand in Friday’s three-day variable rate repo auction, the central bank announced another such overnight auction on Monday (March 23) for a notified amount of ₹1 trillion. The weighted average call rate settled at 5.34 per cent on Friday, against the previous close of 5.29 per cent.

 

Market participants said that due to scheduled outflows from the banking system on account of advance tax payments and goods and services tax, the surplus in system liquidity narrowed.

   

“When there was surplus liquidity, almost everything was getting parked into the SDF (standing deposit facility). That indicated there was no immediate use for funds,” said a treasury head at a private bank.

 

“The advance tax outflow funds are expected to return to the system as government spending towards the end of the month. As a result, participants are currently taking only as much liquidity as required for day-to-day operations. There is no additional bidding in VRR,” the person added.

 

The RBI’s three-day variable rate repo (VRR) auction on Friday saw muted demand as large banks did not participate in the auction. In addition, banks have been borrowing from the tri-party repo market, where the weighted average rate hovered around 5.05 per cent. The VRR auction’s cut-off rate was set at 5.26 per cent.

 

The central bank received bids worth ₹25,101 crore, against the notified amount of ₹75,000 crore. The RBI will conduct an overnight VRR auction of ₹1 trillion on Monday.

 

“Towards the end of the month, liquidity surplus is expected to widen due to government spending; hence, the demand for funds is relatively low. Plus, TREPS is a better avenue for them to borrow funds at lower rates,” said a money market dealer at a state-owned bank.

 

VRR auctions allow banks to borrow funds from the RBI against government securities at market-determined rates, helping the central bank manage short-term liquidity in the financial system.