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The Reserve Bank of India absorbed about Rs 6.02 lakh crore from the banking system on 4 September 2026 through two three-day Variable Rate Reverse Repo (VRRR) auctions.
Banks bid Rs 5,41,975 crore against a notified Rs 7 lakh crore in the first auction and Rs 60,419 crore against a notified Rs 1.5 lakh crore in the second; both cleared at a cut-off of 5.24%.
Banking system liquidity was in surplus of roughly Rs 10.32 lakh crore as on 3 September, a record, driven largely by inflows under the special FCNR(B) deposit scheme and month-end government spending.
The surplus had pushed the Weighted Average Call Rate, the operating target of monetary policy, down to about 4.93%, some 32 basis points below the 5.25% repo rate.
Between August and early September the RBI conducted 32 VRRR auctions with tenors from overnight to 14 days to pull short-term rates back towards the policy rate.
Under a reverse repo the RBI borrows from banks, taking cash out of the system. In a VRRR the rate is discovered through competitive bidding rather than being fixed in advance, so the RBI can drain a chosen quantity and let the price adjust.
Simple Analogy: A reverse auction for parking space: banks compete to park cash, and bidding sets the fee.
| Feature | VRR (Variable Rate Repo) | VRRR (Variable Rate Reverse Repo) |
|---|---|---|
| Purpose | Injects liquidity into the banking system | Absorbs surplus liquidity from the banking system |
| Direction of funds | RBI lends to banks against securities | Banks park surplus funds with the RBI |
| Used when | System liquidity is in deficit and short-term rates rise above the policy rate | System liquidity is in surplus and short-term rates fall below the policy rate |
| Rate determination | Discovered through competitive bidding, above the repo rate as the floor | Discovered through competitive bidding, capped at the repo rate |
| Effect on money market rates | Pulls call money rates down towards the policy rate | Pulls call money rates up towards the policy rate |
India's central bank and monetary authority; conducts VRR and VRRR auctions under the Liquidity Adjustment Facility to keep short-term money market rates aligned with the policy stance. Established under the RBI Act, 1934 and nationalised in 1949.
Six-member statutory committee - three RBI officials and three external members - that fixes the policy repo rate to meet the inflation target of 4% with a tolerance band of plus or minus 2 percentage points. It held the repo rate at 5.25% in August 2026 with a neutral stance.
General Awareness > Banking and monetary policy > RBI liquidity management tools
GS Paper 3 > Indian Economy > Monetary policy, money market and banking
Which of the following are the sources of income for the Reserve Bank of India? I. Buying and selling Government bonds II. Buying and selling foreign currency III. Pension fund management IV. Lending to private companies V. Printing and distributing currency notes Select the correct answer using the code given below.
Answer: I, II and V
In which year was the Reserve Bank of India (RBI) established?
Answer: 1935
If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do?
Answer: Increase the Marginal Standing Facility Rate
The average interest rate on overnight interbank borrowing, weighted by transaction value; it is the operating target of RBI monetary policy.
The RBI window through which banks borrow (repo) or park funds (reverse repo, SDF) to manage day-to-day liquidity; the policy corridor runs from the SDF rate to the MSF rate.
Foreign Currency Non-Resident (Bank) deposit - a foreign-currency term deposit that NRIs hold with Indian banks, insulating the depositor from exchange-rate risk.