RBI Sets Competitive Underwriting Commission Rates and Conducts 3-Day VRR Auction at 5.51% Cut-Off in 2025

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The Reserve Bank of India (RBI) conducted a three-day Variable Rate Repo (VRR) auction, receiving and allotting bids worth ₹27.50 billion against a notified ₹500 billion. The weighted average and cut-off rate for the auction was set at 5.51%, reflecting moderate demand in liquidity management amid ongoing monetary policy calibration.

The Reserve Bank of India executed a targeted three-day Variable Rate Repo (VRR) auction in October 2025 as part of its liquidity adjustment framework. Despite notifying an auction size of ₹500 billion, the RBI accepted bids totaling ₹27.50 billion, underscoring a cautious demand environment among banks.

The weighted average rate and the cut-off rate were both fixed at 5.51%, setting a benchmark for short-term borrowing within the banking system. The VRR auction is instrumental in managing liquidity by allowing banks to borrow from the central bank at competitive rates, thus ensuring stable money market conditions and supporting effective monetary policy transmission.

Additionally, RBI set underwriting commission rates for government securities maturing in 2074 and 2030 at 0.0021 and 0.0013 rupees per 100 rupees, respectively. These low commissions are designed to incentivize primary dealers to fully underwrite unsold government bonds, securing fiscal financing and maintaining orderly government securities markets.

The auction's relatively subdued bid volume compared to the notified amount suggests banks prefer operating in liquid money markets with existing short-term rates or are adjusting their liquidity management in view of upcoming policy moves, including an expected phased CRR reduction.

Key Highlights:

RBI conducted a three-day VRR auction with a notified amount of ₹500 billion.
Actual bids received and allotted amounted to ₹27.50 billion.
Weighted average and cut-off rate established at 5.51% for the auction.
Underwriting commission for 2074 and 2030 bonds set at 0.0021 and 0.0013 rupees per 100 rupees.
Auction aids RBI in regulating liquidity and ensuring smooth monetary policy transmission.
Banks showed cautious appetite for VRR borrowing amid prevailing interest rate conditions.
RBI continues to monitor liquidity and may adjust open market operations including CRR cuts.
The underwriting commission structure facilitates guaranteed government securities subscription.

This measured auction highlights RBI’s calibrated approach to liquidity management in 2025, balancing market demand with institutional reserve requirements to foster economic stability.

Sources: Reserve Bank of India, Business Standard, Economic Times

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