Mumbai, Jan 30 (KNN) In a move to address the widening liquidity deficit in the banking system, the Reserve Bank of India (RBI) has announced an overnight variable rate repo auction (VRR) scheduled for Tuesday, aiming to inject up to Rs 25,000 crore into the financial market.

This decision comes after the recent two-day VRR auction conducted on Monday, where the RBI received an overwhelming response with bids totaling Rs 73,290 crore, significantly surpassing the initially notified amount of Rs 25,000 crore.

The heightened demand for liquidity highlights the persistent tight liquidity conditions in the banking system.

As of Sunday, the liquidity deficit in the banking system reached Rs 2.58 trillion, according to data provided by the RBI.

Previous VRR auctions also witnessed substantial responses, with banks submitting bids ranging from 2.5 to 3.2 times the specified amounts, underscoring the urgent need for liquidity.

The banking system has been grappling with a prolonged deficit in liquidity, particularly evident during the third quarter.

In response to these challenges, the RBI conducted a VRR auction on December 15, marking a reintroduction of the measure after a six-month break.

With the upcoming overnight VRR auction, the RBI aims to mitigate the liquidity crunch and ensure the smooth functioning of the financial system.

Market participants will closely monitor the outcomes of this initiative, hoping for a positive impact on the overall liquidity situation in the banking sector.

(KNN Bureau)