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Worried about liquidity tightness in view of advance tax and GST outflows, banks remained reluctant to park funds with the Reserve Bank of India’s variable rate reverse repo (VRRR) auction on Friday.
Against a notified amount of Rs 1 trillion for the four-day VRRR auction, banks parked only Rs 5,780 crore.
“Banks are playing it safe ahead of advance tax and GST outflows,” said the head of treasury of a public sector bank, explaining a tepid response to the VRRR auction. Banks expect over Rs 2 trillion outflows this month.
The central bank mopped up over Rs 1.5 trillion through VRRR auctions this month.
“…banks have been cautious and let me also make one point. There is still some amount of liquidity sitting there. When we say banks are cautious, let’s remember that about Rs 1.5 trillion have been mopped up through VRRR operations,” said RBI Governor Shaktikanta Das during an interaction with the media, after the announcement of the monetary policy review on Thursday.
It is noteworthy that Rs 1.8 trillion worth Rs 2,000 notes have been returned so far, since the process started on May 23. Of this Rs 1.8 trillion, 85 per cent was deposited, which is around Rs 1.5 trillion.
