RBI absorbs ₹2.23 lakh crore via VRRR auction to drain banking surplus
Synopsis
The RBI absorbed ₹2.23 lakh crore in a single VRRR auction on 18 September — part of a relentless liquidity drain that has already pulled the banking surplus down from ₹10.73 lakh crore to ₹6.94 lakh crore in one week. With two more OMO sales queued for late September, the central bank is sending an unambiguous signal: excess money will not be allowed to undercut the policy rate.
Key Takeaways
The RBI absorbed ₹2.23 lakh crore via a VRRR auction on 18 September 2026 , accepting all bids.
Bids received totalled ₹2,22,629 crore against a notified amount of ₹2.25 lakh crore ; weighted average rate was 5.24% .
Banking system liquidity surplus stood at ₹6.94 lakh crore as of 17 September , down from ₹10.73 lakh crore on 11 September .
The RBI sold government securities worth ₹50,000 crore via an OMO auction the previous day.
Two additional OMO sales of ₹25,000 crore each are scheduled for 21 September and 28 September .
Earlier this week, the central bank absorbed ₹3.93 lakh crore in a separate VRRR auction at the same 5.24% rate.
The Reserve Bank of India (RBI) on Friday, 18 September 2026, absorbed ₹2.23 lakh crore from the banking system through a Variable Rate Reverse Repo (VRRR) auction, as the central bank intensifies efforts to drain excess liquidity and keep short-term money market rates anchored to the policy repo rate.
Auction Details
According to an official release from the central bank, the RBI received bids worth ₹2,22,629 crore against a notified amount of ₹2.25 lakh crore and accepted all bids in full. The funds were absorbed at a weighted average rate of 5.24%, consistent with the rate applied in the previous week's operation.
Scale of the Liquidity Surplus
Data from the central bank showed that liquidity in the banking system remained in a surplus of approximately ₹6.94 lakh crore as of 17 September. This marks a significant moderation from the ₹10.73 lakh crore surplus recorded as of 11 September, underscoring the cumulative effect of the RBI's recent absorption measures.
Broader Liquidity Management Strategy
The VRRR auction came a day after the RBI sold government securities worth ₹50,000 crore through an Open Market Operation (OMO) auction — another tool for withdrawing durable liquidity. The central bank has also scheduled two additional OMO sales of ₹25,000 crore each on 21 September and 28 September as part of its wider liquidity management plan. Notably, the RBI has been conducting VRRR auctions since last month in a sustained push to align overnight rates with the repo rate.
Context: Last Week's Operation
Earlier this week, the RBI absorbed ₹3.93 lakh crore through a separate VRRR auction, having received bids of ₹3,93,352 crore against a notified amount of ₹5 lakh crore. All bids were accepted at a cut-off and weighted average rate of 5.24%. The back-to-back absorptions signal the central bank's determination to prevent excess funds from pulling overnight rates structurally below the policy corridor.
What This Means for Markets
A persistently large surplus can loosen financial conditions beyond the RBI's intended stance, potentially stoking credit growth or inflation. By draining liquidity via VRRR and OMO sales, the central bank aims to maintain effective monetary transmission — ensuring that rate signals set in the Monetary Policy Committee's meetings are felt across the money market. Analysts will watch whether the surplus narrows further ahead of the next scheduled policy review.
Point of View
But the system remains awash in funds. The real question is whether the RBI will sustain this pace through Q3 or ease off if credit growth shows signs of flagging — a balancing act that markets will scrutinise closely at the next Monetary Policy Committee meeting.
NationPress
18 Sept 2026
Frequently Asked Questions
What is a VRRR auction and why does the RBI use it?
A Variable Rate Reverse Repo (VRRR) auction is a tool through which the RBI temporarily absorbs surplus cash from commercial banks at a market-determined interest rate. The RBI uses it to prevent excess liquidity from pulling overnight money market rates below the policy repo rate, thereby maintaining effective monetary transmission.
How much liquidity did the RBI absorb on 18 September 2026?
The RBI absorbed ₹2.23 lakh crore — specifically bids worth ₹2,22,629 crore — through a VRRR auction on 18 September 2026, accepting all bids at a weighted average rate of 5.24%.
What is the current surplus liquidity in India's banking system?
As of 17 September, the banking system surplus was estimated at approximately ₹6.94 lakh crore. This is down from ₹10.73 lakh crore as of 11 September, reflecting the cumulative impact of multiple VRRR and OMO operations.
What are the upcoming RBI liquidity operations to watch?
The RBI has scheduled two Open Market Operation (OMO) sales of ₹25,000 crore each on 21 September and 28 September 2026. These, combined with ongoing VRRR auctions, form part of the central bank's broader strategy to drain durable surplus liquidity.
Why does excess liquidity concern the RBI?
A large and persistent liquidity surplus can loosen financial conditions beyond what the RBI's monetary policy stance intends, potentially fuelling excess credit growth or inflationary pressures. By absorbing surplus funds, the central bank ensures that the policy repo rate remains the effective anchor for short-term borrowing costs across the economy.
