Mon Sep 23 17:53:59 UTC 2024: ## Banks Flock to RBI for Liquidity as Tax Outflows Tighten System

**Mumbai, September 20:** Banks aggressively bid for liquidity from the Reserve Bank of India (RBI) on Monday, reflecting a sharp decline in system liquidity due to tax outflows. The one-day variable repo rate auction saw bids totalling over ₹1 lakh crore, significantly exceeding the notified amount of ₹50,000 crore.

This surge in demand for funds comes after a shift in the banking system’s liquidity position. A surplus of ₹2.55 lakh crore on September 5 has dwindled to a deficit of about ₹5,000 crore on September 18, primarily attributed to monthly Goods and Services Tax (GST) and quarterly advance tax payments. The system has since recovered to a mild surplus of about ₹25,000 crore.

“RBI is carefully managing liquidity operations to ensure that the weighted average call rate remains within the desired band of 6.40 per cent to 6.60 per cent,” explained V Rama Chandra Reddy, Head-Treasury, Karur Vysya Bank.

The RBI received bids totalling ₹1,02,655 crore at the one-day VRR auction and accepted bids for ₹50,007 crore at a weighted average rate of 6.66 per cent.

In recent weeks, the RBI has undertaken various liquidity management operations, including a 3-day VRR auction for ₹1 lakh crore on September 17, a 14-day auction for ₹25,000 crore on September 20, and the one-day auction on September 20.

RBI Governor Shaktikanta Das emphasized the Reserve Bank’s commitment to flexibility in liquidity management during the last bi-monthly monetary policy review on August 8. The goal, he stated, is to maintain orderly money market interest rates amidst evolving liquidity conditions.

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