MUMBAI: RBI will conduct a record Rs 2.5-lakh-crore variable rate reverse repo (VRRR) auction on Friday as it seeks to absorb a persistent glut of liquidity in the banking system. This move follows a series of recent VRRR operations that have drained Rs 3 lakh crore, yet the money market surplus remains above Rs 3 lakh crore. By some estimates, the system is now awash with close to Rs 9 lakh crore in excess funds, drawing parallels with the quantitative easing seen in developed economies after the global financial crisis.This liquidity surge is the result of robust govt spending, including large fiscal outflows and subsidies, as well as RBI’s foreign exchange interventions, which have added rupee liquidity. At the same time, deposit growth has outpaced credit growth, leaving banks with more cash than they can profitably deploy. Recent regulatory tweaks, such as changes to the liquidity coverage ratio, have further boosted banks’ lendable resources. The VRRR auction is a key tool for RBI to mop up this surplus. Unlike the fixed-rate reverse repo, VRRR allows banks to bid competitively, helping to align overnight rates with the central bank’s policy objectives and keep them within the liquidity adjustment facility (LAF) corridor