The Reserve Bank of India's (RBI) 29-day variable rate reverse repo (VRRR) auction received a tepid response on Thursday, even though banking system liquidity is in a huge surplus.

However, the central bank's second VRRR auction, with a one-day maturity, received a good response, reflecting banks' reluctance to park money with the RBI for a longer tenure.

The central bank received bids worth Rs 79,655 crore for the 29-day VRRR auction against a notified amount of Rs 2 lakh crore, which it accepted fully at a cut-off and weighted average rate of 5.49 per cent.

The overnight VRRR auction received bids worth Rs 1,60,664 crore for a notified amount of Rs 2 lakh crore. The RBI accepted the entire amount offered during the auction at a cut-off and weighted average rate of 5.49 per cent.

Currently, liquidity in the banking system is estimated to be in a surplus of around Rs 4.24 lakh crore as of October 4, according to RBI data.

During August and September, system liquidity increased substantially due to the recent measures undertaken to attract capital inflows. As measured by the net position under the LAF, system liquidity averaged a daily surplus of Rs 5.9 lakh crore since the last MPC meeting in August 2026.

The average daily net absorption under the LAF increased from Rs 1.2 lakh crore in July 2026 to Rs 5.8 lakh crore in August and further to Rs 7.8 lakh crore in September.

The Reserve Bank conducted 55 variable rate reverse repo (VRRR) auctions, including 2 term VRRR auctions and OMO sales amounting to Rs 1 lakh crore since the August 2026 policy, the RBI said.

On October 7, RBI Governor Sanjay Malhotra, during the post-monetary policy press conference, said the huge banking system liquidity is to be absorbed within the current financial year through various means such as currency leakage, the Reserve Bank's liquidity operations and banks' reserve requirements.