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Informist, Wednesday, Feb. 4, 2026

By Cassandra Carvalho

MUMBAI – The overnight weighted average call rate Wednesday ended at its lowest since Aug. 4, 2022--barring Saturdays--as the surplus liquidity in the banking system rose to its highest since early December, amid lack of any major outflows, dealers said. The one-day interbank call money rate ended below the Reserve Bank of India's repo rate as banks had excess liquidity and did not need to rely on borrowing to meet their funding requirements. 

The one-day call rate ended at 5.10%, from 4.40% the previous session. The weighted average rate call rate was 4.98%, down from 5.06% Tuesday. The weighted average rate in the broader tri-party repo market--which includes mutual funds--was 4.24%, also lower than the standing deposit facility rate and 4.40% on Tuesday. The net liquidity absorbed from the banking system by the RBI--a proxy for the liquidity surplus--rose to INR 2.17 trillion Tuesday, the highest since Dec. 5, from INR 1.71 trillion Monday.

Along with the Centre's month-end expenditure for salaries and pensions, the systemic liquidity was boosted after the RBI infused a total of INR 1.37 trillion through two 90-day variable rate repo auctions last week. Banks parked INR 3.65 trillion with the RBI at its Standing Deposit Facility Tuesday--the highest since Jun. 13--some of which is funds borrowed at the 90-day VRRs, dealers said. Further, mutual funds were sitting on cash and had to deploy them at low rates due to poor demand for funds, dealers said. 

"Mutual funds have to achieve their fund deployment targets but banks have enough surplus so no one is going to borrow from them, so they are lending at however low rates as they can," a dealer at a state-owned bank said.

"If I just sit on cash and don't deploy it, when I could invest in a one-year CD (certificates of deposit) at around 6.94%, I'm losing out on 250 bps," a dealer at a mutual fund said.

Due to the slump in overnight borrowing rates to below the floor of the Liquidity Adjustment Facility corridor, traders now expect the RBI to conduct a variable rate reverse repo auction this week, even though such an auction is not looked upon favourably by market participants. Some traders do not expect such an auction this week, since rates across fixed income markets are seen rising if the RBI conducts such an auction, which the RBI is unlikely to be comfortable with. The RBI has not conducted a VRRR since Dec. 5.

"We've been expecting a VRRR for the past two to three days but it hasn't come yet," a dealer at another state-owned bank said. "I don't think RBI will hold one, because out of the liquidity surplus, around (INR) 1.5 (trillion) RBI has only provided to us through the 90-day VRRs. That money is not going to be prepaid soon because banks will use that money to maintain their LCR (liquidity coverage ratio requirements) since the tenure is quarter crossing."

The two 90-day VRRs mature on Apr. 30. Amid an average net liquidity absorption of INR 666.57 billion since January till Sunday, several banks have struggled to maintain their liquidity coverage ratio, dealers said.   

OUTLOOK

On Thursday, the one-day call money rate may open below the RBI's repo rate of 5.25% on surplus liquidity and a lack of major scheduled outflows this week. Liquidity is seen increasing by Friday, after the RBI conducts an INR-500-billion open market operation auction Thursday, and the first-leg settlement of the $10 billion, three-year dollar-rupee buy-sell swap auction conducted Wednesday takes place.

Traders will watch out for any announcement of a VRRR. On Friday, traders will track the decision of the RBI's Monetary Policy Committee. Traders do not expect a rate cut but expect assurance from the RBI that it will continue to provide sufficient liquidity to the banking system. Some traders also expect the RBI to announce a relaxation in liquidity coverage ratio norms, dealers said. The call rate is likely to be in the range of 4.40-5.20% during the day, dealers said.

CALL RATE

5.10%--Wednesday's close for one-day loans

5.05%--Wednesday's open for one-day loans

4.40%--Tuesday's close for one-day loans

BENCHMARK MIBOR (in %)  

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Near SDF rate as liquidity surplus rises to near-2-month high

NEW DELHI – The interbank call money rate was near the Reserve Bank of India's standing deposit facility rate of 5.00% as surplus liquidity rose to its highest since early December, dealers said. Early demand for funds from primary dealerships was met by banks using their cash surplus.

At 1010 IST, the one-day call rate was at 5.05%, up from Tuesday's close of 4.40%. The weighted average call rate was 5.05%, compared to 5.06% on Tuesday. The weighted average rate in the wider tri-party repo market, which includes mutual funds, was 4.28%, against 4.40% the previous trading day.

The net liquidity absorbed from the banking system by the RBI – a proxy for the liquidity surplus – rose to INR 2.17 trillion Tuesday from INR 1.71 trillion Monday. The liquidity surplus increased as banks brought down their cash balances with the RBI and parked the funds under the Standing Deposit Facility, which shows up as net liquidity absorption, dealers said. The cash balances with the RBI fell to INR 7.66 trillion on Tuesday from INR 7.97 trillion the previous day. 

Corporate houses and mutual funds have been lending heavily in the triparty repo and market repo windows, pulling down rates to around 4.50% or below over the last three trading days. Banks have not been on the lending side in the triparty repo market, having access to the SDF facility at 5.00%, but have lent money in the call money market as they are sporting large surpluses, dealers said

To pull rates up to close to the repo rate amid the surplus liquidity, some traders had expected the RBI to conduct a short-term variable rate reverse repo operation. However, such an auction now seems unlikely as the central bank has held off on the action for two days while call money rates have fallen below the repo rate, dealers said. Moreover, it may not want to conduct the auctions before scheduled tax outflows and the Monetary Policy Committee decision, both on Friday

"We have been expecting a VRRR for the last two days but he (RBI) has not given it," a dealer at a private sector bank said. "Maybe he is worried about sending the wrong message and doesn't want to drain liquidity when he has just given it. It is looking to be an interesting policy from the liquidity point of view." (Aaryan Khanna)

End

US$1 = INR 90.4350

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

Edited by Akul Nishant Akhoury

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