Surplus liquidity fell from ₹10.73 lakh crore at its peak to about ₹542 crore on 22 October.
MUMBAI: The Reserve Bank of India lent banks ₹2,00,027 crore in gross terms between 19 and 22 October through three variable rate repo auctions. Overnight call rates had jumped to about 5.67%, which is 17 basis points above the 5.50% policy rate. The move is tactical plumbing and not easing. This month’s rate hike stands, and the central bank is still draining durable surplus cash while it fills a seasonal gap.
₹10.73 lakh crore
The squeeze followed a flood. In late August and early September, system surplus ran between ₹6.94 lakh crore and ₹10.73 lakh crore, fed by foreign currency deposits and swap inflows. A glut that large can pull overnight rates towards the 5.25% floor and dull the effect of rate moves. Consequently, the RBI drained cash through reverse repo auctions, including ₹3.93 lakh crore on 15 September at 5.24%, and through outright bond sales of at least ₹1 lakh crore.
99%
On 9 October, the RBI left the headline cash reserve ratio at 3.00% but raised the minimum banks must hold each day from 90% to 99%. The change applies from the fortnight beginning 16 October. Earlier, treasury desks could let balances dip on tax outflow days and rebuild them later. The new rule removes that buffer and locks cash in unremunerated accounts. Notably, it also strengthens the pass-through of policy rates, since banks can no longer rely on idle surplus.
5.67%
Then the drains converged. Festive cash withdrawals moved money out of reserve balances. GST payments of ₹1.50 lakh crore to ₹2.00 lakh crore, and direct tax collections of ₹13.38 lakh crore by mid-October, shifted funds into government balances at the RBI. Treasury bill and state bond auctions drew more. Meanwhile, the central bank sold dollars to steady the rupee amid high crude prices and foreign outflows, which also absorbs rupee cash. Surplus liquidity fell to ₹1,85,873 crore on 18 October, and on Monday 19 October the call rate neared the 5.75% emergency ceiling.
₹2 lakh crore
The RBI responded that morning with a 7-day auction of ₹1,00,000 crore. Banks bid ₹1,50,735 crore, and it allotted ₹1,00,014 crore at a cut-off of 5.51% and a weighted average of 5.52%, repayable on 26 October. Overnight auctions of ₹50,000 crore followed on 21 and 22 October. The first drew bids of ₹93,241 crore and cleared at 5.52%. The second drew ₹1,62,354 crore, or 3.25 times the amount, and cleared at 5.54% with a 5.55% average. All three auction rates stayed within 5 basis points of the policy rate.
Because the overnight tranches reverse each day, the ₹2,00,027 crore is a gross figure and not a net addition. By 22 October, surplus liquidity had shrunk to about ₹542 crore, the tightest since late June.
5.50%
The corridor sits symmetrically around the policy rate, with the 5.25% deposit rate as floor and the 5.75% marginal standing facility as ceiling. The Monetary Policy Committee raised the repo rate by 25 basis points to 5.50% this month, with a stance of calibrated tightening. The auctions only keep the call rate close to that level, which is the central bank’s operating target.
For banks, cheap surplus is gone. Treasuries are issuing more certificates of deposit and companies are turning to commercial paper, so yields have risen over Treasury Bills. Lenders that depend on wholesale funding may see thinner margins. Banks must also compete for deposits, which lifts deposit rates. Loans tied to the repo rate reprice at once, and those linked to the marginal cost of funds follow as costs rise. Importantly, the auctions also assure banks of cash during peak festive demand for retail, auto, housing and small-business loans.
What comes next
Several questions remain open. The RBI may keep injecting into November, or conditions may ease as festive cash returns to deposits and government spending releases tax receipts. Rupee defence could also keep draining reserves if crude stays high. The December policy meeting will then show whether tightening has done enough.
Therefore, five readings deserve attention. They are the daily call rate against 5.50% and 5.75%, the central bank’s daily money market release, currency in circulation in the weekly supplement, government cash balances and the spread of three-month deposit certificates and commercial paper over 91-day bills. Encouragingly, the RBI is combining structural tools with precise short-term ones, and it has kept overnight rates close to target. Ultimately, the first weeks of November will show whether this is a festive blip or a tighter normal.
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