The Reserve Bank of India on Friday announced that it will discontinue incremental cash reserve ratio (I-CRR) in a phased manner.
The central bank had announced the measure in its August 10 monetary policy meeting wherein scheduled banks were required to maintain an I-CRR of 10 per cent on the increase in their net demand and time liabilities (NDTL) between May 19, 2023, and July 28, 2023. The announcement was a temporary measure to absorb excess liquidity generated by various factors, including a return of Rs 2,000 banknotes to the banking system, RBI’s surplus transfer to the government, a pick-up in government spending, and capital inflows.
It was indicated in the August 10 monetary policy meeting that the I-CRR is a temporary measure for managing the liquidity overhang and that the I-CRR will be reviewed on September 8, 2023, or earlier with a view to returning the impounded funds to the banking system ahead of the festival season.
“On a review, it has been decided to discontinue the I-CRR in a phased manner. Based on an assessment of current and evolving liquidity conditions, it has been decided that the amounts impounded under the I-CRR would be released in stages so that system liquidity is not subjected to sudden shocks and money markets function in an orderly manner,” said RBI.
The release of funds would be as follows:
While 25% of the I-CRR maintained would be released on September 9, 2023, another 25% would be released on September 23, 2023, and the balance 50% would be released on October 7, 2023.
