The banking system is reeling under surplus liquidity due to the concessional swap facility provided by RBI to encourage banks to mobilise FCNR(B) deposits
The Reserve Bank of India has decided to conduct a 30-day variable rate reverse repo (VRRR) auction on September 7 to suck out ₹7 lakh crore surplus liquidity from the banking system. This comes in the backdrop of the banking system being awash with liquidity.Banks have so far shown a distinct preference to deploy funds for shorter-tenor (overnight or three-days) than for a longer-period (15 days or more).The banking system is reeling under surplus liquidity due to the concessional swap facility provided by RBI to encourage banks to mobilise foreign currency non-resident (bank) deposits of 3-5 years duration as part of its measures to attract foreign capital.Under the swap facility, banks swapped the Dollar inflows via FCNR (B) deposits with RBI and received Rupee equivalent of funds. The swap for FCNR(B) deposits are available only for deposits mobilized till August 31, 2026. RBI said the swaps under this facility can be availed with RBI till September 11.The banking system had a surplus of ₹10.31 lakh crore as on September 3, per RBI data. This is expected to swell further to around ₹12 lakh crore by September 11.At the 3-day VRRR auction conducted by the RBI on Friday to suck out ₹7 lakh crore surplus liquidity, it received offers and accepted funds aggregating ₹5,41,975 crore at a weighted average rate (WAR) of 5.24 per cent.At the second 3-day VRRR auction conducted to drain out ₹1.50 lakh crore surplus liquidity, it received offers and accepted funds aggregating ₹60,419 crore at a WAR of 5.24 per cent.Published on September 4, 2026
