Thanks to the robust inflows into FCNR (B) deposits during the June 8, 2026 to August 31, 2026 period under the RBI’s concessional swap facility, the banking system is currently awash with liquidity, with the surplus at last count (August 31, 2026) at a whopping ₹6.65 lakh crore. To absorb this surplus, the RBI on Tuesday conducted two Variable Rate Reverse Repo (VRRR) auctions for ₹6 lakh crore and ₹4 lakh crore.The first VRRR auction of seven days duration to drain out ₹6 lakh crore saw a relatively muted response, with banks parking ₹1,14,320 crore at weighted average rate (WAR) of 5.24 per cent. However, the second VRRR auction (overnight) to suck out ₹4 lakh crore saw a better response, with banks parking ₹2,59,846 crore at a WAR. of 5.24 per cent.Banks prefer parking surplus resources overnight to locking them up for a longer duration (a week or a fortnight) as they need to keep the powder dry to support credit opportunities that may arise, said K Arvind, Head - Treasury, Tamilnad Mercantile Bank.The RBI will be conducting a VRRR auction of one-day duration on September 2, 2026, to suck out Rs 5 lakh crore from the banking system.Besides VRRR auctions, the RBI can also conduct open market operation (OMO) sale of government securities to drain out liquidity surplus from the system. Increasing the cash reserve ratio is the last option as it removes liquidity on a durable basis.Liquidity in the banking system has been more or less in surplus since the RBI announced measures to attract foreign capital on June 5, 2026.In his August 5, 2026, bi-monthly monetary policy statement, RBI Governor Sanjay Malhotra, said: “Going ahead, the usual return of currency during the monsoon season, drawdown of government cash balances and our special measures to attract capital inflows are expected to aid banking system liquidity in the near-term.“Through its conduct of two-way operations, the Reserve Bank will proactively ensure sufficient liquidity in the banking system, guided by the objective of aligning the weighted average call rate (WACR) to the policy repo rate.”Published on September 1, 2026