RBI turns to overnight liquidity withdrawal after technical issues hit its 30-day auction.
The Reserve Bank of India (RBI) announced an overnight cash withdrawal operation on Monday after a technical glitch disrupted participation in its 30-day variable rate reverse repo (VRRR) auction, traders said.
The central bank will conduct an overnight VRRR auction for ₹5 trillion ($52.96 billion), after banks submitted offers worth ₹2.59 trillion in the 30-day operation.
The 30-day auction, which offered banks an early redemption option, was aimed at withdrawing surplus liquidity from the banking system. However, participation was affected after technical problems forced the RBI to shift bidding from its usual e-Kuber platform to another system.
“The bidding for the VRRR was changed to another platform, as e-Kuber, the usual one, had some technical issues, and hence some banks were caught unaware and were not able to participate,” a trader with a state-run bank said.
The lower-than-expected participation prompted the RBI to announce the additional overnight operation, giving banks another opportunity to place funds with the central bank.
VRRR auctions are among the RBI’s tools for managing liquidity in the banking system. Under the operation, banks park surplus funds with the central bank for a specified period, helping the RBI absorb excess liquidity.
The Rs 5 trillion overnight operation comes as the central bank seeks to fine-tune liquidity conditions and ensure that short-term money-market rates remain aligned with its monetary policy stance.
More from BusinessThe technical disruption also highlights the importance of the RBI’s electronic auction infrastructure, which banks routinely use to participate in liquidity-management operations.
