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Informist, Wednesday, Mar. 18, 2026

By Durgesh Nandan, Shumaila Firoz, and Aaryan Khanna

NEW DELHI – The two-day call rate ended above the Reserve Bank of India's repo rate of 5.25% Wednesday as surplus liquidity likely fell to its lowest in nearly two months due to the settlement of a large state bond auction. Banks requirements for surplus cash ahead of the Gudi Padwa holiday Thursday and before goods and services tax outflows begin Friday also pushed up borrowing requirements, dealers said.

The two-day call rate ended at 5.40%, the highest closing level since Jan. 29, and up from 5.31% Tuesday. The weighted average call rate was 5.29%, similar to 5.28% Tuesday. The weighted average rate in the tri-party repo market was 5.17%, sharply up from 5.04% Tuesday.

The net liquidity absorbed by the RBI from the banking system – a proxy for systemic liquidity surplus – was INR 819.64 billion Tuesday, slightly higher than INR 754.84 billion Monday. The surplus contracted further Wednesday due to the settlement of the INR 575.25-billion state bond auction conducted Tuesday, dealers said.

The dearth of liquidity in the banking system led to even state-owned banks, typically the lender in the call market, to borrow funds. Their demand in the tri-party repo market also pushed the tri-party repo rate to end at the Marginal Standing Facility rate of 5.50%, its highest close in seven weeks.

"Private- and public-sector banks were mostly on the borrowing side, while mutual funds were on the lending side," a dealer at a private-sector bank said.

Banks also wanted to maintain adequate cash balances with the RBI to meet cash reserve ratio requirements at the beginning of the fortnight, with limited visibility on how liquidity conditions would evolve at the quarter- and year-end. On a systemic level, cash balances parked with the RBI have been near the fortnightly requirement of INR 7.75 trillion on both Tuesday and Wednesday. With GST-linked payments likely to lead to outflows of over INR 1.50-trillion on Friday and Monday and demand for bank credit surging in the latter half of March, banks said their liquidity needs will be significant and need more RBI support, at least in the form of more variable rate repo auctions.

Their expectations were fulfilled after market hours, when the RBI announced it would conduct an INR 750-billion, three-day VRR auction at 0930-1000 IST Friday. On Tuesday, the RBI conducted a seven-day VRR auction for INR 1.5 trillion. However, the subscription was poor, around INR 480 billion, despite low liquidity surplus in the banking system and firm overnight rates. This underwhelming subscription at the auction was because most dealers were not keen to borrow funds at 5.26% – the minimum cut-off – for seven days. Most banks were happy with the decision as the weighted average triparty repo rate remained below the policy repo rate of 5.25%, dealers said. 

Some traders had also been worried that money markets would be shut on Friday in addition to Thursday if the scheduled holiday of Ramzan Id-ul-Fitr would be shifted from Saturday. This would have greatly driven up their funding needs heading into the weekend. While the concern was abundant in the market, no panic was seen, as evidenced by money market volumes falling on Wednesday from Tuesday, dealers said.

OUTLOOK

Money markets are shut Thursday for Gudi Padwa. On Friday, the three-day call money rate is likely to open above the RBI's repo rate of 5.25% as outflows for goods and services tax payments begin. The call money rate is seen in a range of 4.75-5.50% through the day.

More liquidity infusion measures are expected to ease money market rates near the quarter- and financial year-end in March, dealers said. The RBI will conduct an INR-750-billion, three-day VRR auction at 0930-1000 IST Friday. The announcement eased traders' concerns that money markets would be shut Friday as well, for Ramzan Id.

CALL RATE

5.40%--Wednesday's close for two-day loans

5.35%--Wednesday's open for two-day loans

5.30%--Tuesday's close for one-day loans

BENCHMARK MIBOR (in %)  

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

India Call: Above repo amid low liquidity surplus; PSU banks turn borrowers

MUMBAI – The two-day interbank call money market rate was above the Reserve Bank of India's repo rate Wednesday as systemic liquidity surplus remained below the INR-1.00-trillion comfort level, and banks provided for two-day funding requirements, dealers said. Traders also borrowed to pay for settlement of the INR-575.24-billion state bond auction conducted Tuesday, they said.   

At 1025 IST, the two-day call rate was 5.35%, up from 5.30% for one-day loans Tuesday. The weighted average call rate was 5.34%, up from 5.28% Tuesday. The weighted average rate in the tri-party repo market – which includes mutual funds – was 5.12%, against 5.04% Tuesday. The net liquidity absorbed by the RBI from the banking system – a proxy for systemic liquidity surplus – was INR 819.64 billion Tuesday, slightly higher than INR 754.84 billion Monday. 

Several large banks, especially state-owned ones, which are usually on the lending side, have turned borrowers amid a liquidity crunch, dealers said. Some traders still expect the RBI to conduct a variable rate repo auction for a two- or three-day tenure between INR 500 billion and INR 750 billion within the next week, in spite of the poor subscription at the VRR held Tuesday, the first such auction since Jan. 30.

"The rates are high because liquidity is low in the system, around 82 thousand crores (INR 820 billion) to 83 thousand crores (INR 830 billion)," a dealer at a state-owned bank said. "I can't say which banks are borrowing or lending but yes, all the big banks are on the borrowing side as they (big banks) have to maintain their CRR (cash reserve ratios) and GST (goods and services tax) outflow is also scheduled."

Further, traders borrowed funds to maintain two days worth of cash, as money markets are shut Thursday for Gudi Padwa. Some traders were also uncertain of the schedule of trading sessions for the rest of the week, due to clarity awaited on when Eid will be celebrated. Outflows of INR 1.80 trillion usually begin by the 21st of every month for goods and services tax payments. Since money markets may be shut Friday or Saturday for Eid, traders looked to front-run their borrowing requirements, dealers said. Currently, Saturday is a scheduled bank holiday for Ramzan-Id, as per the RBI's website. 

In the longer term, banks are also looking to accumulate funds ahead of scheduled Assembly elections in several states in April, dealers said. Assam, Puducherry, Kerala, Tamil Nadu, and West Bengal will have legislative Assembly polls next month.  (Cassandra Carvalho, Shumaila Firoz and Durgesh Nandan)  End

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

Edited by Deepshikha Bhardwaj

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