The Reserve Bank of India (RBI) has decided to sell government bonds worth ₹1 lakh crore through Open Market Operations (OMO) to control excess cash in the banking system. The move is aimed at absorbing surplus liquidity from the financial system and controlling the availability of cash.
According to the RBI, government securities worth a total of ₹1 lakh crore will be sold in three separate phases. Securities worth ₹50,000 crore will be sold on September 17, 2026, followed by sales of ₹25,000 crore on September 21 and ₹25,000 crore on September 28.
The auctions will be conducted using a multi-security and multiple-price method. Eligible participants will be required to submit their bids through the e-Kuber system. For the September 17 auction, the bidding window has been set from 9:30 am to 10:30 am, with the results to be announced on the same day.
The government securities being sold will have maturities between financial year 2028-29 and financial year 2031-32. The decision also marks the RBI’s first net OMO bond sale in nearly two years.
The RBI’s decision comes as excess liquidity in the Indian banking system has increased. Higher cash availability has pushed overnight interest rates below the repo rate. The central bank is intervening to withdraw this surplus money from the system and maintain stability in the money market.
The objective of the OMO sale is also to balance liquidity in the financial system and keep short-term interest rates aligned with the RBI’s policy stance.
The announcement of the OMO sale put pressure on the Indian government bond market. Expectations of increased supply of government securities led to higher bond yields.
India’s benchmark 10-year government bond yield rose by around 6 basis points to 7.035 percent. The yield on the 5-year government bond increased by around 10 basis points to 6.6222 percent. An increase in bond yields generally indicates pressure on their prices.
Several factors have contributed to the recent increase in liquidity in the Indian financial system. Banks raised more funds than expected under the RBI’s special foreign currency mobilisation scheme. This also led to a notable increase in the country’s foreign exchange reserves and raised rupee liquidity in the banking system.
When banks have more cash than required, they can lend it to other banks for short periods. This puts pressure on overnight market interest rates, which can fall below the central bank’s repo rate. For the RBI, this situation is relevant to the effective operation of monetary policy.
The RBI’s liquidity management comes at a time when crude oil prices are rising in global markets. India imports crude oil on a large scale to meet its energy requirements. Continued increases in international oil prices can therefore put pressure on domestic inflation and import costs.
Controlling excess cash can help the RBI balance financial conditions. The OMO sale can also affect bond yields, borrowing costs in the market and broader financial conditions.
