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Informist, Monday, Sept. 7, 2026

 

By Aaryan Khanna

 

NEW DELHI – The one-day call money rate ended near the Reserve Bank of India's Standing Deposit Facility rate of 5.00% due to low demand for funds from banks amid a record liquidity surplus in the banking system, dealers said. The weighted average call rate, the operating target of monetary policy, was below the SDF rate even after the central bank conducted a 30-day variable rate reverse repo auction to absorb liquidity.

 

"Ultimately, the 30-day VRRR is not going to do anything for rates if people don't participate in it," a dealer at a private-sector bank said. "I think it's a bit early to say, but this attempt was a bit of a flop. Let's see if he conducts any more such operations every week." Excise duty outflows of around INR 500 billion Monday had no impact on banks' demand for funds due to the surplus cash they held, dealers said. 

 

The liquidity drain operation was for the longest tenure since January 2020 and comes after banking system surplus liquidity swelled to a record high of over INR 10 trillion, the most since the RBI started releasing the data in January 2019. It was keenly watched as a sign of banks' participation in the RBI's liquidity management after the weighted average call rate--the operating target of monetary policy--slipped below its Liquidity Adjustment Facility corridor. The central bank had added a provision where banks can wholly or partially reverse the funds prematurely, which was an incentive for participation to provide operational flexibility, dealers said. 

 

The RBI took all offers worth INR 2.59 trillion at the INR-7.00-trillion, 30-day operation, in line with the median estimate in an Informist Poll. Some banks said they faced an issue with logging into e-Kuber, the auction platform, due to internal systems being configured improperly. This delayed but may not have restricted significant participation at the auction. The second VRRR auction did not face any such issues but was preferred by banks.  The RBI accepted all bids for INR 3.53 trillion at the overnight, INR-5.00-trillion tender conducted at 1100-1130 IST. 

 

"Banks seem to be confused about the purpose of the longer VRRR," a dealer at a state-owned bank said. "There is no issue in parking the funds for 30 days because you can get them returned anytime you want. Instead, the market knows that the RBI will conduct overnight VRRRs and that is a safety blanket that is causing an issue in subscription of these long-term auctions."

 

The one-day call money rate ended at 5.05%, up from 3.25% for two-day loans Saturday and 5.00% for three-day loans Friday. The weighted average call rate was 4.97%, from 3.87% Saturday and 4.94% Friday. The volume in the most-traded contracts was INR 103.30 billion Monday, up from INR 11.32 billion Saturday and INR 46.98 billion Friday. Activity is usually dull on Saturdays as market participants meet their liquidity needs for the weekend on Fridays. 

 

The one-day tri-party repo rate ended at 4.50%, against 4.00% for two-day loans Saturday. The weighted average rate was 4.59% from 2.99% Saturday. The volume in the contract was INR 4.91 trillion against INR 159.69 billion Saturday. On Friday, the three-day tri-party repo rate ended at 3.48%, with a weighted average rate of 4.22% and a trade volume of INR 4.79 trillion.

 

Banking system liquidity continued to rise over the weekend to fresh record highs since the RBI has begun publishing the data in January 2019. The net liquidity absorbed by the RBI, a proxy for the liquidity surplus, rose to INR 11.16 trillion Sunday from INR 11.12 trillion Saturday and INR 10.73 trillion Friday. The increase was due to the settlement of banks tapping the RBI's concessional window for swapping foreign currency non-residents (banks) deposits raised between Jun. 8 and Aug. 31, dealers said. 

 

OUTLOOK

Tuesday, the one-day call rate is seen near the RBI's Standing Deposit Facility amid hefty surplus liquidity. Borrowers are likely to prefer borrowing funds from the tri-party repo market, leading to poor volume in the call market.

 

The banking system liquidity could rise to near INR 12 trillion this week as the window for swapping FCNR(B) deposits ends on Friday, dealers said. Attention will be on the RBI's liquidity measures to bring the weighted average call rate back to the policy corridor. The central bank will conduct an overnight, INR-5.00-trillion VRRR auction at 0930-1000 IST Tuesday. 

 

Outflows for advance tax and goods and services tax payments later this month will drain about INR 4.5 trillion. By the RBI's next policy meeting in October--which is the same day as the reversal of the 30-day VRRR--core systemic liquidity could top INR 10 trillion, which could merit permanent measures to drain the liquidity surplus, dealers said. Dealers expect the one-day call rate at 4.00–5.20% Tuesday. The one-day tri-party repo rate is expected to be in the 3.50–5.15?nd. 

 

CALL RATE

5.05%--Monday close for one-day loans

5.00%--Monday open for one-day loans

3.25%--Saturday close for two-day loans

 

BENCHMARK MIBOR (in %)

Mumbai Interbank Outright Rates compiled by Financial Benchmarks India:

 

TENURE	MONDAY	FRIDAY
Overnight	5.03	4.91
3-day	--	--
14-day	5.55	5.62
1-month	5.88	5.92
3-month	6.40	6.44

 

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India Call: At SDF; 30-day VRRR's early reversal fails to get robust offers

 

MUMBAI – The one-day interbank call money rate was at the Reserve Bank of India's Standing Deposit Facility rate of 5.00%, as the surplus liquidity in the banking system remained above INR 10 trillion. The RBI's provision of premature reversal of funds lent at the 30-day variable-rate reverse repo operation either wholly or partially failed to attract full subscription at the auction. The RBI took all offers worth INR 2.59 trillion at the INR-7-trillion, 30-day operation, the same as that estimated in an Informist Poll. The RBI may announce an overnight VRRR for INR 5 trillion to INR 7 trillion later in the day, dealers had said. The RBI later said it will conduct an overnight operation for INR 5 trillion, in line with expectations. Subscription at the operation is seen at INR 3.75 trillion. 

 

Even with a facility for pre-mature reversal of funds lent at the 30-day VRRR, traders were reluctant to park funds in the long-tenure VRRR amid outflows for tax payments and nearing the festive season, when demand for credit is likely to pick up. "Everyone is hesitating to participate because tax payments are also there, or what if I need funds immediately for credit but I have to go through a process of requesting for funds, etc," a dealer at a state-owned bank said. Outflows for goods and service tax and advance tax payments are due starting next week, of nearly INR 5 trillion. Outflows for tax deducted at source and excise duty for about INR 500 billion begin Monday, but it is unlikely to increase demand for funds amid the hefty liquidity surplus, dealers said.

 

The call money was not traded until tendering at the 30-day VRRR ended, at 1000 IST, dealers said. Until then, there were barely any bid-asks, with traders quoting 5.05% on the higher end until then, dealers said. Some dealers were quoting rates at 5.00%, which was too low for lenders since it is also the Standing Deposit Facility rate, dealers said. "I think indicative levels (for call) should be 4.50-5.00%, because TREPS is at 4.30-4.50%, so I'd not want to borrow at much higher a rate in call," a dealer at a private-sector bank said. The net liquidity absorbed by the RBI, a proxy for the liquidity surplus, rose to INR 10.73 trillion Friday from INR 10.31 trillion Thursday.  

 

At 1030 IST, the one-day call rate was at 5.00% against 3.25% for two-day loans Saturday. The weighted average call rate was 5.03%, from 3.87% Saturday. The trade volume was INR 2.56 billion at 1030 IST, while there was no trade in this contract at the same time Saturday. The one-day tri-party repo rate was 4.48%, against 4.00% for two-day loans Saturday. The weighted average rate was 4.52%, from 2.99% Saturday. The volume on the same contract was INR 2.37 trillion at 1030 IST against INR 35.37 billion at 1030 IST Saturday.  (Cassandra Carvalho)

 

End

 

Edited by Deepshikha Bhardwaj

 

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