RBI repo auction: banks can borrow Rs 50,000 crore for four days on Monday, after five auctions that soaked up spare cash

The Reserve Bank of India will offer banks Rs 50,000 crore in four-day loans on Monday, 9 November. The RBI repo auction takes bids between 9:30 am and 10 am, and the money is due back on Friday, 13 November, the central bank said in a notice on 6 November. The only reason it gave was a review of how much spare cash the banking system has, and how that is likely to change in the near term.

In a repo, a bank pledges government securities to RBI for cash and repays it with interest when the deal ends. In this variable rate version, each bank bids the amount it wants and the rate it is ready to pay, and RBI accepts bids down to a cut-off rate.

A switch after five absorbing auctions

Between 3 and 6 November RBI did the opposite, holding five Variable Rate Reverse Repo auctions, in which banks lend their spare money to RBI. In the first of two auctions on 4 November, banks offered Rs 73,907 crore against Rs 50,000 crore sought. On 5 November they put in only Rs 7,767 crore against the Rs 75,000 crore RBI sought. The three-day auction on Friday, 6 November drew Rs 18,133 crore against Rs 25,000 crore, at a cut-off of 5.49%, and that money returns to the banks on Monday, the day the new repo opens.

On 5 November, the day they offered Rs 7,767 crore in the auction, banks parked Rs 1,77,942 crore in RBI’s Standing Deposit Facility, which pays 5.25%. RBI’s operations that day took out a net Rs 1,81,410 crore.

A third of the October size

Monday’s amount is a third of the four-day repo RBI ran on Monday, 26 October. Banks bid for Rs 1,86,666 crore in that auction and received Rs 1,50,007 crore at a cut-off of 5.55%. It came after an overnight repo on 22 October and a three-day repo on 23 October, each of Rs 50,000 crore and each drawing more bids than RBI offered.

The policy repo rate is 5.50%, after the Monetary Policy Committee’s October increase. RBI’s weekly statistics, released on 6 November, show bank credit up 18.2% in the year to 15 October, against 11.6% a year earlier, and aggregate deposits up 16.7%, against 9.5%. Currency with the public stood at Rs 42,55,656 crore on 15 October, 14.1% higher than a year before.

RBI publishes the result of Monday’s auction after the window shuts at 10 am. Whatever banks borrow has to be repaid on Friday, 13 November.