By Nimesh Vora

MUMBAI, Feb 28 (Reuters) - The Reserve Bank of India's longer-term dollar/rupee buy-sell swap witnessed robust demand with the auction drawing bids 1.6 times the $10 billion notified amount.

The central bank accepted 161 bids at the auction with the premium cut-off set at 6.55 rupees. A total of 244 bids worth $16.2 billion were received. Bankers had expected the swap to witness good demand.

The central bank will inject more than 870 billion rupees ($9.96 billion) into the banking system next week under the swap, which is part of a series of steps to inject rupee liquidity.

The settlement of the initial leg of the swap will take place on Tuesday, with a reversal three years later.

"The swap will serve three purposes – it will allow corporates to borrow funds a bit cheaper, secondly it will help RBI on liquidity injection and thirdly RBI will be able to reduce their forward book," said Vikas Jain, head of India fixed income, currencies and commodities trading at Bank of America.

The swap's tenure and size exceeded the central bank's previous $5 billion, six-month swap that was conducted in late January.

"The quantum of the swap has surprised the market and we don't expect any other FX swap auction for the remainder of this financial year," Ritesh Bhusari, joint general manager for treasury at South Indian Bank.

India's fiscal year runs April through March.

($1 = 87.3900 Indian rupees)

(Reporting by Nimesh Vora; Editing by Mrigank Dhaniwala)

((nimesh.vora@tr.com))