RBI's 7-day VRRR auction undersubscribed as banks favor lending in overnight market
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Mumbai: The central bank's seven-day variable rate reverse repo (VRRR) auction was undersubscribed as banks chose to lend in the overnight market instead of parking funds with Mint Road, dealers said. Lower banking participation was also attributed to the reporting Friday, a day when banks need to report their cash reserve ratio (CRR) compliance to the Reserve Bank of India (RBI), treasury officials said. Against the notified amount of ₹2.5 lakh crore, the central bank received bids worth only ₹1.52 lakh crore, which was accepted by the RBI. The cut-off and weighted average rate both came in at 5.49%. The Repo currently is 5.5%. "Usually, there is 20-30 basis points spread between cut-off price and the overnight rates. But on Friday, that spread was lower than 20 bps as overnight rates had risen during the time of auction. So, most banks preferred lending in the overnight market instead of parking with the RBI. The 7-day VRRR was...