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Several Indian banks said on Thursday the Reserve Bank of India (RBI) should continue with more overnight variable rate reverse repo auctions, despite its first such attempt seeing subscriptions of less than half the target amount of 1 trillion rupees.

The RBI's overnight variable rate reverse repo, or VRRR - usually undertaken to withdraw excess liquidity - saw a subscription of only 390 billion rupees ($4.73 billion) earlier in the day.

However, at least five banking officials said the auctions should continue as they look for ways to sponge off additional money from the system.

"The bulk of the surplus was already parked with the RBI, hence subscription to overnight auction fell well short," a senior treasury official at a private bank, who did not want to be named because he is not authorised to talk to media, said.

The Indian central bank has been conducting shorter duration two-day VRRRs through the week, before being prompted by lenders to resort to an overnight auction.

Banks have already parked 878 billion rupees in two-day VRRR and 118 billion rupees under 14-day VRRR.

"Banks are generally cautious before tax outflows, and that could also be one of the reasons for lower participation," said Mataprasad Pandey, vice president at financial advisory firm Arete Capital.

"But overnight VRRRs should see healthy responses if they do not coincide with any major outflows."

Banking system liquidity surplus jumped to 2.35 trillion rupees, the highest in a month, on Wednesday.

That lead to a sharp plunge in overnight rates, averaging comfortably below the central bank's repo rate of 6.50%.

The RBI has been intending to maintain overnight rates - currently around 6.40% - around the repo rate and has been proactive in conducting reverse repos to achieve that.

"What we would like to see is that the overnight call rates are also aligned to 6.5%," RBI Governor Shaktikanta Das said in June.

"The best way to push overnight rates higher is to continue with overnight VRRRs, or else banks may continue preferring parking money at standing deposit facility, instead of longer duration reverse repos," a treasury head at a state-run bank said, asking not to be named since he is not allowed to talk to media.

Reuters had reported in June that the central bank may resort to overnight VRRRs, with banks showing reluctance to park funds for a longer period.