New Delhi, Mar 16 (KNN) The Reserve Bank of India (RBI) bolstered the banking system with a significant infusion of Rs 75,000 crore through a Variable Rate Repo (VRR) auction on Friday. 

This proactive move aims to counteract the impending liquidity crunch anticipated due to forthcoming advance tax and Goods and Services Tax (GST) payments. 

Projections indicate that these tax obligations could collectively drain nearly Rs 2.5 trillion from the banking system

Concerns loom over a potential liquidity deficit in the coming week as these tax payments draw nearer. 

Expressing this sentiment, a treasury head from a public sector bank emphasised the importance of maintaining sufficient liquidity within the banking system. 

The success of Friday's VRR auction underscores the RBI's commitment to ensuring adequate liquidity levels, with indications suggesting the possibility of another VRR auction in the near future.

Of the anticipated outflow, GST payments are estimated at approximately Rs 1.5 trillion, while advance tax payments stand at around Rs 1 trillion. The deadline for advance tax payment was March 15, with GST payments due on March 20.

During the seven-day VRR auction held on Friday, banks submitted bids totaling Rs 76,560 crore. The RBI accepted bids at a rate of 6.52 per cent, which is lower than the marginal standing facility rate of 6.75 per cent. 

This rate differential provides banks with a viable avenue to access liquidity overnight through the RBI's marginal standing facility, particularly in times of interbank liquidity constraints. 

Ultimately, the repo auction serves as a strategic mechanism employed by the central bank to inject liquidity into the banking system, mitigating potential liquidity shortages.

(KNN Bureau)