The Reserve Bank of India (RBI) has conducted an Overnight Variable Rate Repo (VRR) auction under its Liquidity Adjustment Facility (LAF) worth Rs 75,000 crore on Wednesday. Bids received amounted to Rs 57,175 crore, the central bank notified later.
The funds were offered on December 17, 2025, for one day between 10:15 am and 10:45 am, to be reversed on December 18, 2025, the apex bank said in a circular. This move is expected to balance out the dropping rupee and bring liquidity to the year-end banking system in India.
The RBI has been aggressively selling off dollars to arrest the currency depreciation, arresting it ahead of Wednesday morning trades in spot and non-deliverable forward markets.
Overnight variable rate repo auction
In a VRR auction, the RBI temporarily lends money to banks for one day against government securities that banks provide as collateral.
The “notified amount” for the Wednesday auction was Rs 75,000 crore, meaning that is the maximum the RBI aims to inject through this window. However, bids were received only for Rs 57,175 crore.
RBI said that the auction followed the operational guidelines first set out in an earlier January 20, 2022 circular, which laid down the auction process and conditions.
Under those guidelines, banks submit bids on the RBI’s e‑Kuber platform with a minimum bid size of Rs 1 crore and in multiples of Rs 1 crore. The banks then quote the interest rate (in percentage terms up to two decimal places) at which they are willing to borrow overnight, and can submit multiple bids.
Bids at or below the prevailing repo rate are rejected, ensuring the operation is at a market-determined rate above the policy rate. After bidding closes, the RBI arranges all bids from highest to lowest and accepts them until the notified amount is reached.
The lowest accepted rate at which the amount is exhausted becomes the cut-off rate, and all bids below this cut-off are rejected. If the amount at the cut-off rate is more than what is left to be allotted, banks at that rate get money on a pro-rata basis. The RBI also retains the right to inject slightly more or less than Rs 75,000 crore if needed.
But why variable rate?
Back in December 2021, the then-RBI Governor Shaktikanta Das underlined the importance of moving to variable rate auctions, but at that time, he was talking about the reverse repo rate: “In our endeavour to restore the revised liquidity management framework instituted in February 2020, the Reserve Bank has been rebalancing the liquidity surplus by shifting it out of the fixed rate overnight reverse repo window into the variable rate reverse repo (VRRR) auctions of longer maturity. The objective is to re-establish the 14-day VRRR auction as the main liquidity management operation.”
But the logic remains the same: to “rebalance liquidity conditions in a non-disruptive manner” and let short-term market rates move closer to the policy repo rate as overall liquidity evolves.
