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Informist, Friday, Oct. 10, 2025

By Vaishali Tyagi

MUMBAI – The three-day interbank call money rate settled below the standing deposit facility rate of 5.25% as the demand for funds eased after the Reserve Bank of India conducted a variable rate repo auction, dealers said. In response to high money market rates, the RBI conducted a widely expected three-day INR 500 billion variable rate repo auction, which infused INR 379.29 billion into the banking system Friday.

Friday, the three-day call rate ended at 5.00%, sharply down from Thursday's close of 5.75% for one-day funds. However, the weighted average call rate rose slightly to 5.58% from 5.51% the previous day. The interbank call money recorded a volume of INR 181.29 billion on Friday. Meanwhile, in the more active triparty repo market, the rate ended at 5.27%, with the weighted average rate at 5.47%. The overall volume in the market was INR 4.04 trillion.  

Liquidity conditions tightened during the day as several high-profile initial public offerings, including marquee fundraises by Tata Capital and LG Electronics, tied up capital for financial institutions, leading to a cash crunch in both the interbank market and the triparty repo market. While the Tata Capital IPO has ended and funds tied up in its subscription will be released Friday, subscription to LG's IPO will be released only on Monday.

Additionally, dealers pointed out mismanagement in the effective allocation of funds, with market participants parking INR 468.60 billion worth of funds with the RBI in its variable rate reverse repo auction on Thursday, which also drove up overnight rates. 

The banking system liquidity surplus, as measured by the RBI's net liquidity absorbed, rose to INR 1.56 trillion Thursday from INR 1.29 trillion on Wednesday. This was likely due to banks drawing down their cash balances with the RBI, as they had held a surplus of cash over the reserve requirements earlier in the fortnight. 

Dealers expect the systemic liquidity surplus to remain stable or slightly higher in the coming days due to the absence of major outflows, which would result in a cooling of rates by Monday.

OUTLOOK

* The one-day call rate may open near the RBI's repo rate Monday owing to demand for funds from banks amid the investments in initial public offerings.

* During the day, the one-day call money rate is seen in the range of 4.90-5.75%, dealers said.

CALL RATE

5.00%--Friday's close for three-day loans

5.60%--Friday's open for three-day loans

5.75%--Thursday's close for one-day loans

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Near MSF rate amid IPO needs; RBI conducts 3-day VRR auction

MUMBAI – The three-day interbank call money rate was near the Marginal Standing Facility rate of 5.75% due to demand from banks for funds amid cash locked up during bidding for initial public offerings, dealers said. Noting the high money market rates, the Reserve Bank of India conducted a three-day, INR-500-billion variable rate repo auction Friday.

On Friday, the three-day call rate was at 5.65% at 1030 IST, with the weighted average rate at 5.68%. It had opened at 5.60% and climbed to as high as the MSF rate of 5.75%, before declining after the VRR announcement. The total volume in the call market was INR 111.34 billion at 1030 IST, against INR 106.05 billion at the same time Thursday.

Liquidity conditions have tightened since Thursday amid a string of high profile initial public offerings, including marquee fundraises by Tata Capital and LG Electronics. While the Tata Capital IPO has ended and funds tied up in its subscription will be released Friday, subcriptions to LG's IPO will only be released Monday. Funds worth INR 4.90 billion are with some investment from banks and mutual funds. This has led to capital being tied up for these financial institions and a cash crunch in both the interbank market and the triparty repo market, which is a collateralised funding market that includes mutual funds.

"The money is blocked in LG's IPO, so a lot of the institutions are desperate for funds. That is playing out in the market and rates have been above repo," a dealer at a state-owned bank said.

The banking system liquidity surplus, as measured by the RBI's net liquidity absorbed, rose to INR 1.56 trillion Thursday from INR 1.29 trillion on Wednesday. This was likely due to banks drawing down their cash balances with the RBI, as they had held a surplus of cash over the reserve requirements earlier in the fortnight.

Traders said the VRR auction is likely to be used by banks and primary dealerships to meet their immediate needs at cheaper rates, and help cool money market rates as well. The weighted average triparty repo rate was 5.56%, similar to Thursday, as mutual funds were also facing the liquidity strain due to their investments in the IPOs. However, dealers said the systemic liquidity surplus would continue to remain at current levels or slightly higher due lack of scheduled outflows on Friday on next week, and rates should cool by Monday. The reversal of the overnight variable rate reverse repo also added INR 468.60 billion to the banking system.  End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Saji George Titus

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