The Reserve Bank of India has absorbed Rs 1.52 lakh crore of excess liquidity from the Indian banking system since Friday.
The central bank has conducted variable rate reverse repo (VRRR) auctions on four consecutive days since Friday in a bid to remove excess liquidity from the banking system. But auctions have failed to see enthusiastic participation from banks, as evidenced by the lack of bids relative to the notified amounts for the auction.
Auctions held on Friday and Monday received bids worth 25.4% and 66.6% of the notified amount, respectively, whereas the auction held on Tuesday received bids worth 43% of the notified amount.
On Wednesday, participation fell even further as a Rs 75,000 crore VRRR auction received bids worth only Rs 1,850 crore.
The existence of surplus liquidity in the banking system can hamper the effective transmission of monetary policy. While excess banking liquidity decreased sharply in May, it has since recovered and currently stands at Rs 2.49 lakh crore, according to Bloomberg data.
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