RBI to conduct VRRR today to mop up Rs 1 lakh crore

Mumbai: The Reserve Bank of India (RBI) will conduct a three-day variable rate reverse repo (VRRR) operation for ₹1 lakh crore on Tuesday.

The fall in overnight rates, and with TREPS (tri-party repo dealing system) rate below the so-called liquidity adjustment facility or LAF corridor, the VRRR announcement was expected, bank treasury officials said.

"The three-day auction may see higher participation compared to the previous seven-day auction because banks prefer lending in the overnight market instead of parking with the RBI for a week. Overnight rates may inch higher by 5-10 basis points, depending on how much is offered and accepted," said Rajeev Pawar, head of treasury, Ujjivan Small Finance Bank.

The reversal of three-day VRRR will take place on Friday, a day when ₹1.52 lakh crore will return to the banking system on account of reversal of the previous VRRR. The previous VRRR for seven days was undersubscribed.

Bank treasury officials said that the VRRR is aimed at keeping weighted-average call rate (WACR) and the TREPS (tri-party repo dealing system) rate within the LAF corridor. This corridor has the marginal standing facility (MSF) rate, currently at 5.75%, as its upper bound (ceiling) and the standing deposit facility (SDF) rate, currently at 5.25%, as the lower bound (floor), with the policy repo rate in the middle of the corridor.