NEWS: RBI Injects ₹81,590 Crore into Banking System through VRR Auction

CONTEXT

Sometimes banks face a temporary shortage of cash for daily operations like:

• Giving loans
• Settling payments
• Managing customer withdrawals

To solve this short-term cash shortage, the RBI gives money to banks temporarily through a tool called VRR auction.

So, in this case:

• RBI gave banks money for 3 days
• Total money injected = ₹81,590 crore

What is Liquidity?

• Liquidity means availability of cash or money in the banking system.
• High Liquidityà Banks have enough money to lend.
• Low/Tight Liquidityà Banks face cash shortage and borrowing becomes costly

What is Transient Liquidity?

• A temporary shortage or fluctuation of cash in the banking system.
• It is usually short-term and changes daily.

Variable Rate Repo (VRR) Auction

• A VRR auction is a tool used by RBI to provide short-term funds to banks.
• Banks borrow money from RBI for a short period.
• Interest rate is decided through auction bidding.
• The rate may change, so it is called “Variable Rate”

Objectives

• Maintain smooth flow of money in banking system
• Prevent sudden rise in interest rates
• Ensure banks have enough short-term cash
• Maintain financial stability

Important Terms

• Repo Rateà Rate at which RBI lends money to commercial banks.
• VRR Auctionà Temporary liquidity injection tool used by RBI.
• Call Money Rateà Short-term interbank borrowing rate for one day.