The Reserve Bank of India set up a new advisory committee on its bond, currency and money markets on Nov. 4, naming seven outside members from banks, a clearing house and academia, in the same week it ran daily auctions to soak up surplus cash that many banks did not want to part with.

The Technical Consultative Committee for Financial Markets will be chaired by the deputy governor in charge of the RBI's Financial Markets Regulation Department and will meet at least once a quarter, the central bank said. For foreign investors in Indian government bonds and rupee derivatives, it creates a formal channel through which the RBI's market rules, from trading and settlement to reporting, will be tested with the banks that deal in them.

Who sits on the RBI markets committee

The external members are Ananth Narayan, a former whole-time member of the Securities and Exchange Board of India who now teaches at IIT Bombay; Shamsher Singh, chairman of the Fixed Income Money Market and Derivatives Association of India and a deputy managing director at State Bank of India; Neeraj Gambhir, executive director at Axis Bank; Shailendra Jhingan, head of treasury and economic research at ICICI Bank; Aditya Bagree, managing director and head of markets at Citibank India; Nand Kishore, managing director of Clearing Corporation of India; and Ridham Desai, managing director at Morgan Stanley India.

The RBI first announced the panel in its Statement on Developmental and Regulatory Policies on Oct. 7, the day it raised its repo rate to 5.5%, its first increase since 2023. The central bank said the committee responds to "rapidly evolving financial markets and infrastructure."

Its terms of reference are broad. The committee will look at how well the money, government securities and foreign exchange markets and their derivatives work, including liquidity and resilience, and suggest ways to deepen them. It will also cover clearing, settlement and reporting systems, the effect of RBI measures already in force, any unintended frictions those measures create, and new risks from domestic and international developments. The RBI can also refer specific issues to it.

Banks shun reverse repo auctions

The committee arrived as the RBI shifted from adding cash to the banking system to draining it. Banking system liquidity stood at nearly 2 lakh crore rupees (2 trillion rupees) in surplus on Monday, Nov. 2, The Economic Times reported, prompting the central bank to start overnight variable rate reverse repo auctions, in which banks park excess funds with the RBI.

Demand has been patchy. At the first auction on Nov. 3, the RBI offered to take 50,000 crore rupees but banks bid only 23,905 crore rupees, all of which was accepted at a cut-off rate of 5.49%, according to RBI data. The Economic Times attributed the weak response to an uneven spread of the surplus across banks. The weighted average call rate, the rate on overnight interbank loans, eased to 5.45% on Nov. 3 from 5.50% a day earlier, the newspaper said.

The next morning's auction drew offers of 73,907 crore rupees against a notified 50,000 crore rupees, and the RBI accepted 50,015 crore rupees. A second auction that day for 25,000 crore rupees attracted just 1,180 crore rupees. On Nov. 5, the RBI raised the notified amount to 75,000 crore rupees but received only 7,767 crore rupees in offers. Every auction cleared at 5.49%.

The RBI said it would hold a 25,000 crore rupee, three-day reverse repo auction on Friday, Nov. 6, with the funds returned to banks on Monday, Nov. 9.

Deposit rates start to climb

The surplus has not filtered evenly to lenders' funding costs. Bank of India raised rates on deposits of one to under three years by 10 to 35 basis points, becoming the second bank to raise deposit rates in the current cycle, The Economic Times reported on Nov. 3. Its one-year rate for deposits below 3 crore rupees rose to 6.6% from 6.5%. A senior Bank of India executive told the newspaper that system liquidity had tightened as the boost from earlier inflows under the FCNR(B) foreign currency deposit scheme faded.

Bond traders have read the cash glut more simply: Indian government bond yields fell to their lowest since late September this week as the RBI's draining operations started.

The RBI is also gathering data for its next policy review. On Nov. 3 it launched the November rounds of its urban and rural consumer confidence surveys and its household inflation expectations survey, which it said provide inputs for monetary policy. The three-day auction on Nov. 6 and the size of the following week's operations will show whether the central bank expects the surplus to last.