The Reserve Bank of India used variable rate reverse repo, or VRRR, auctions to temporarily withdraw excess rupees. Under this arrangement, banks place funds with the central bank for a specified period and earn interest.

For the first auction, a three-day operation, RBI set an offer size of ₹7 lakh crore. It accepted the entire ₹5,41,975 crore bid amount, with the cut-off at 5.24%. The second auction attracted ₹60,419 crore against an offer of ₹1.5 lakh crore.

The surplus was estimated at ₹10.32 lakh crore on September 3. A major contributor was the special FCNR(B) deposit scheme, which received $136.38 billion by August-end. Banks exchanged those foreign-currency funds for rupees with RBI, adding liquidity. Government payments for month-end salaries and pensions also increased cash in bank accounts.

Abundant funds weighed on overnight rates: the weighted average call rate dropped to 4.93%, putting it 0.32 percentage points below the policy rate. RBI has held 32 VRRR auctions since August, with tenures spanning overnight to 14 days, to help bring market rates closer to the repo rate.

The FCNR(B) window shut early after strong demand, but External Commercial Borrowing and Overseas Foreign Currency Borrowing channels remain available until December 31. Further inflows through these routes could mean continued liquidity absorption by RBI.