RBI Liquidity Measures: Planning VRR of ₹2.5 Lakh in Banking System

The Reserve Bank of India (RBI) was prepared to inject ₹2,50,000 crore into the banking system through its Variable Rate Repo (VRR) auction on Wednesday to improve liquidity.

The central bank explained that the amount was determined after assessing current liquidity conditions. Additionally, the RBI announced that it would hold daily VRR auctions on all working days in Mumbai, with reversals occurring the next working day, until further notice.

RBI Governor Sanjay Malhotra had stated last Friday, following the monetary policy meeting, that the central bank was committed to ensuring adequate liquidity in the economy and would take necessary steps to maintain stable liquidity to meet system requirements.

Governor Malhotra also emphasized that the RBI is closely monitoring the rupee and taking measures to stabilize the Indian currency.

As per new reports, RBI will actively manage liquidity and possibly implement additional measures (such as OMO purchases or FX swaps) as liquidity shortages increase towards the end of March. The report suggests the possibility of a prolonged rate-cut cycle if the growth recovery is slow, influenced by weak domestic demand and global uncertainties.

To support its view, the report referenced the RBI governor’s statement, highlighting the trade-off between stability and efficiency on the regulatory front. The governor noted that this balance would be considered when formulating regulations.

In a major relief for banks, RBI Governor Malhotra announced the deferral of the proposed Liquidity Coverage Ratio (LCR) and project financing norms for one year, meaning they will not be implemented before March 31, 2026.

The decision was made because the original deadline of March 2025 did not allow enough time for proper implementation. The RBI aims to prevent disruptions in the financial system and ensure a smooth transition.

Both public and private sector banks had opposed the implementation of these norms, which were announced by former RBI Governor Shaktikanta Das, expressing concerns over a potential liquidity crisis. Bank leaders raised this issue with Malhotra after he assumed office, following the end of Das’s tenure.

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