RBI Picks Exto India for Offline Payment Testing
In a decisive move to address liquidity constraints in the Indian banking system, the Reserve Bank of India (RBI) has conducted a series of Variable Rate Repo (VRR) auctions, infusing a substantial ₹76,000 crore into the financial ecosystem. This initiative aims to alleviate the liquidity deficit and stabilize short-term interest rates, particularly the call money rates, which had been trading above the RBI’s repo rate of 6.5%.
The RBI’s intervention through VRR auctions is designed to inject liquidity into the banking system, thereby reducing the weighted average call rate (WACR) and ensuring that overnight borrowing costs align more closely with the repo rate. This strategic move is expected to ease liquidity conditions and prevent call money rates from rising sharply above the current repo rate.
Auction Details: On January 20, 2025, the RBI conducted a VRR auction, accepting bids totaling ₹75,772 crore at a cut-off rate of 6.51%. The liquidity injected is scheduled for reversal on January 21, 2025.
Liquidity Deficit: As of January 19, 2025, the banking system’s liquidity deficit stood at ₹1.93 lakh crore, with an average deficit of ₹1.61 lakh crore in January.
Market Impact: The WACR closed at 6.60% on January 20, 2025, indicating that overnight borrowing costs were slightly above the repo rate due to the liquidity deficit.
While the RBI’s daily VRR auctions are expected to reduce volatility in overnight rates, some experts suggest that these measures may not fully address the higher liquidity deficit. Alok Singh, Group Head of Treasury at CSB Bank, noted that daily VRR auctions help in reducing overnight rate volatility but may not provide long-term durable liquidity.
This intervention follows a series of similar actions by the RBI to manage liquidity. In March 2024, the central bank infused ₹1.16 lakh crore through three VRR auctions amid tight liquidity conditions.
| Why in News | Key Points |
|---|---|
| RBI infuses ₹76,000 crore into the banking system | – RBI injected ₹76,000 crore via Variable Rate Repo (VRR) operation. – Aim: To ease liquidity deficit and stabilize call money rates. |
| Auction Details | – ₹75,772 crore accepted at a cut-off rate of 6.51%. – Liquidity to be reversed on January 21, 2025. |
| Liquidity Deficit | – ₹1.93 lakh crore deficit as of January 19, 2025. – Average deficit in January: ₹1.61 lakh crore. |
| Call Money Rates | – Weighted Average Call Rate (WACR) closed at 6.60% on January 20, 2025. – Slightly above the repo rate due to liquidity deficit. |
| Expert Opinions | – Experts say VRR auctions help reduce volatility but may not fully address long-term liquidity deficit. |
| Past Measures | – RBI had infused ₹1.16 lakh crore in March 2024 through similar auctions. |
| Related Scheme | – VRR is a tool to manage liquidity in the banking system. |
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