India's overnight rates spiked on Friday after the central bank moved to drain bank liquidity, with upcoming holidays and tax outflows adding to the scramble for cash, traders said.

The weighted average interbank call money rate jumped to 6.66% from an average of 6.38% between Aug. 1 and Aug. 10, and above the policy repo rate of 6.5%.

The TREPS rate, at which non-banks borrow and lend overnight funds, rose to 6.54% from 6.27% in the first ten days of the month.

Traders blamed the spike on the timing of the Reserve Bank of India's decision to impose an incremental cash reserve ratio (CRR) on banks.

Banks have been asked to maintain an incremental CRR of 10% on increase in deposits between May 19 and July 28, with effect from the fortnight starting Aug. 12, a move that will withdraw over one trillion rupees ($12.08 billion) from the system.

"The timing of the move has put pressure on banks to borrow aggressively as we will not get much chance to cover, and hence today they are borrowing for next three days, and same will happen on Monday," a treasury head at a state-run bank said, requesting anonymity as he is not authorised to speak to media.

Indian money markets will also remain shut on Saturday, Sunday, Tuesday and Wednesday, with limited funding options available, while monthly tax outflows will start in the second half of the month.

Nomura expects call market rate to average in 6.65%-6.70% for the month. The rate could spike over the marginal standing faility (MSF) rate - the upper end of the interest rate corridor, which is currently at 6.75%.

"The RBI's intention seems to be to keep overnight rates closer to MSF rate, which will act as an indirect hike in policy rate for some time," said VRC Reddy, treasury head of Karur Vysya Bank.

The RBI will review this measure before Sept. 8, which implied banks would have to maintain additional CRR for the next two fortnights, ending Aug. 25 and Sept. 8. ($1 = 82.7725 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by Varun H K)