The RBI has decided to conduct daily VRR operations to enhance banking liquidity amid the ongoing deficit.
Banking & Finance
In January 2025, the Reserve Bank of India (RBI) decided to conduct Variable-Rate Repo (VRR) auctions daily until further notice. This move aims to improve banking liquidity amid a shortage.
- The first such VRR auction was held on January 16, 2025, with a value of Rs 50,000 crore. Only standalone primary dealers were allowed to participate in the auction alongside other eligible bidders.
- To manage the liquidity deficit, RBI reduced the Cash Reserve Ratio (CRR) of all banks to 4% of their deposits. This change will happen in two phases, each of 25 basis points (bps), starting from December 14, 2024, and December 28, 2024.
- As of January 14, 2025, according to RBI data, the banking system had a liquidity deficit of Rs 2.09 lakh crore, and VRR auctions allow RBI to inject liquidity into the banking system during such deficits.
Main Point :- (i) On January 15, 2025, RBI held a 5-day VRR auction with a notified amount of Rs 75,000 crore, receiving Rs 3,980 crore in bids, amid decreased banking liquidity due to RBI's increased forex market interventions, as India's Forex Reserve dropped to a 10-month low on January 3, 2025.
(ii) VRR (Variable-Rate Repo) : This is a tool used by the RBI to inject short-term liquidity into the banking system. Through VRR, RBI allows banks to borrow money at a market-determined rate (usually lower than the Repo rate) for a maximum period of 14 days.
(iii) CRR (Cash Reserve Ratio) : RBI requires all commercial banks in India to keep a certain percentage of their total deposits in cash with the RBI.
About RBI
Governor : Sanjay Malhotra
Headquarter : Mumbai
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