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RBI begins first net bond sale in nine years to absorb record bank surplus

RBI begins first net bond sale in nine years to absorb record bank surplus

Money Moves

RBI completes ₹1 lakh crore in net bond sales, its biggest in a decade, as surplus bank cash halves; traders expect more absorption

September 28th, 2026: Final tranche completes ₹1 lakh crore bond sale

Overview

Updated Oct 6

By September 28, the Reserve Bank of India had sold the full ₹1 lakh crore in government bonds it announced on September 11 — its biggest annual net bond sale in more than a decade. Combined with dollar-rupee swaps, the sales cut the banking system's surplus cash from a record ₹11.16 lakh crore to ₹4.92 lakh crore by September 21.

Overnight rates remain below the 5.25% repo target. Banks still park ₹1.5-2.2 lakh crore a day in the central bank's standing deposit facility, a sign the surplus persists. The drain is not finished — treasury heads at Anand Rathi and ICBC expect another ₹1-1.5 lakh crore in bond sales in October-November, or a cash reserve ratio hike.

Why it matters

If the drain works, Indian loan and deposit rates will track RBI policy moves more closely and likely drift higher.

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Key Indicators

₹1 lakh crore
OMO bond sales completed
All three tranches sold by September 28 — the biggest annual net bond sale in over a decade. Traders expect another ₹1-1.5 lakh crore.
₹50,000 crore
First tranche (Sept 17)
Banks bid ₹66,590 crore for the ₹50,000 crore offered; the auction was fully subscribed.
5.25%
Repo rate
The RBI's policy rate, the target that short-term market rates are meant to track.
5.02%
Call money rate (pre-OMO)
Weighted average overnight rate before the bond sales began, below the repo target. Heavy SDF absorption shows rates are still below 5.25%.
₹4.92 lakh crore
Banking-system surplus
Down 55% from a record ₹11.16 lakh crore in early September, as of September 21.
$127B
FCNR(B) deposits
Foreign-currency deposits mobilized by August 31 under the RBI's special scheme, a main source of the surplus. Reuters reports the scheme drew $133 billion overall.

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People Involved

Harsimran Sahni
Harsimran Sahni
Head of Treasury, Anand Rathi Global Finance
Expects the RBI to sell another ₹1-1.5 lakh crore of bonds in October-November
 Alok Sharma
Alok Sharma
Head of Treasury, ICBC
Expects ₹1 lakh crore more in OMO sales or a cash reserve ratio hike

Organizations Involved

Reserve Bank of India
Reserve Bank of India
Central bank
Completed its ₹1 lakh crore net OMO bond sale on September 28; FX swaps drained ~$18.5 billion; market expects further absorption

India's central bank, conducting open market operations to withdraw cash from the banking system.

Timeline

August 2026 September 2026

6 events Latest: September 28th, 2026 · 1 month ago
Tap a bar to jump to that date

  1. Final tranche completes ₹1 lakh crore bond sale

    Latest Auction

    The third ₹25,000 crore auction finished the RBI's ₹1 lakh crore net bond sale — its biggest annual net sale in over a decade. Treasury heads now expect another ₹1-1.5 lakh crore in sales or a cash reserve ratio hike.

  2. Surplus cash halves to ₹4.92 lakh crore

    Liquidity measurement

    Reuters reported the banking system's surplus fell to ₹4.92 lakh crore ($51.36 billion) on September 21, down 55% from a record ₹11.16 lakh crore two weeks earlier, driven by bond sales, tax outflows, and an estimated $18.5 billion in RBI dollar sales and sell-buy swaps.

  3. Second tranche of ₹25,000 crore sells

    Auction

    The RBI accepted the full ₹25,000 crore offered, with total bids of ₹84,982 crore, in the middle auction of the three-tranche operation.

  4. First tranche of ₹50,000 crore sells

    Auction

    Banks bid ₹66,590 crore for the paper on offer; the RBI accepted the full amount at cut-off yields of 6.60% to 7.01%.

  5. RBI announces ₹1 lakh crore bond sale

    Announcement

    The central bank schedules three OMO sale auctions for September 17, 21, and 28, its first net bond sale since November 2017.

  6. Foreign-currency deposits reach $127 billion

    Liquidity build-up

    The RBI's special FCNR(B) scheme, plus other foreign borrowing, swelled bank cash to a record surplus.

Scenarios

1

RBI completes ₹1 lakh crore drain; overnight rates return near repo

Deadline passed (Oct 15, 2026)

Discussed by: Reuters and market participants

The September 21 and 28 auctions sell at or near full subscription. As cash leaves the banking system, the weighted average call money rate climbs from 5.02% back toward the 5.25% repo rate. Transmission improves without any change to the policy rate, and bond yields stabilize near their elevated levels.

2

RBI expands bond sales beyond ₹1 lakh crore

Possible Resolves by End of 2026

Discussed by: Reuters, citing bond traders; Bloomberg

The surplus is structural, built from $127 billion in foreign-currency deposits converted into rupees. If the call rate barely moves after the first ₹1 lakh crore, the RBI announces further OMO sales to pull rates back to target. Bond yields would likely rise further as supply grows.

3

RBI raises the repo rate to reinforce the liquidity drain

Possible Resolves by End of 2026

Discussed by: Reuters, which ties the OMO to expected rate hikes

Less spare cash raises banks' funding costs and sharpens transmission, setting up a policy-rate move. If inflation pressure persists, the RBI's Monetary Policy Committee raises the repo rate above 5.25%, tightening conditions further and pushing bond yields higher.

4

RBI sells another ₹1-1.5 lakh crore of bonds in October-November

Likely Resolves by Nov 30, 2026

Discussed by: Harsimran Sahni (Anand Rathi Global Finance), Alok Sharma (ICBC), via CNBC TV18

The surplus, though halved, leaves banks flush. Treasury heads expect the RBI to keep selling bonds through October-November, or to raise the cash reserve ratio, pushing overnight rates back toward the 5.25% repo target. Bond yields would rise as supply grows.

5

RBI raises repo rate at October policy meeting

Deadline passed (Oct 31, 2026)

Discussed by: Reuters poll of economists

A Reuters poll found most respondents expect a policy rate hike at the October meeting, reinforcing the liquidity drain. Raising the repo above 5.25% would tighten conditions further and push bond yields higher.

Historical Context

3 moments from history that rhyme with this story — and how they unfolded.

November 2016 to November 2017

Post-demonetization liquidity drain (2016-2017)

In November 2016, India invalidated 86% of its currency overnight. Banks were flooded with deposits as people returned old notes, creating a huge liquidity surplus. The RBI drained it over the following year, with its last net open-market bond sale in November 2017.

Then

The surplus was absorbed within about a year, and overnight rates returned to the policy corridor.

Now

It set the template for using balance-sheet tools to manage liquidity without touching the policy rate.

Why this matters now

Today's sale is the first net open-market sale since that episode, nine years earlier.

2018 to 2019

RBI bond purchases in 2018-19

By 2018, liquidity had swung the other way, turning structurally tight as currency demand grew. The RBI bought government bonds through open market operations to inject cash, the reverse of today's sales.

Then

The injections softened money-market rates and supported credit growth.

Now

They showed the same OMO tool works in both directions, adding or withdrawing cash.

Why this matters now

The September 2026 sales are the mirror image, withdrawing cash when the surplus is large.

2022 to 2025

US Federal Reserve quantitative tightening (2022-2025)

After pandemic-era bond purchases swelled its balance sheet, the US Federal Reserve shrank it from 2022, letting bonds mature and selling holdings to tighten financial conditions.

Then

Money-market rates stayed near the target range as liquidity was gradually withdrawn.

Now

It reinforced the principle that central banks manage liquidity separately from policy rates.

Why this matters now

It is the international benchmark for how a central bank shrinks cash in the system without changing its policy rate.

Sources

(14)
+8
Reserve Bank of India Reuters The New Indian Express Bloomberg The Hindu BusinessLine ET BFSI NewKerala Rediff Money CNBC TV18 The Business Times Reserve Bank of India Reuters CNBC TV18 Reserve Bank of India