MUMBAI: In a positive development for banks, the Reserve Bank of India (RBI) on Friday announced to discontinue the incremental cash reserve ratio (I-CRR) in a phased manner beginning Saturday. RBI had imposed I-CRR on banks to absorb surplus liquidity following the withdrawal of Rs 2,000 currency notes.
On August 10, the RBI mandated banks to maintain an I-CRR of 10% on the increase in their net demand and time liabilities (NDTL) between May 19, 2023, and July 28, 2023.
“On a review, it has been decided to discontinue the I-CRR in a phased manner,” the RBI said in a statement. “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,” it added.
The RBI said 25% of the amount of I-CRR maintained by banks will be released on Saturday and another 25% on September 23. The rest will be released on October 7. With the imposition of I-CRR, RBI has managed to drain out excess liquidity from the banking system. As per RBI data, the liquidity was around `2.64 lakh crore on August 10, which went down to `1.21 lakh crore on August 13 and on August 21 the system transitioned into a deficit of `23,644.43 crore.
The liquidity in the banking system has remained below `1 lakh crore. On Thursday, the liquidity surplus was about `76,000 crore while a day before on Wednesday the surplus was `93,935 crore. While announcing the I-CRR, RBI Governor Shaktikanta Das had indicated that the provision was a temporary measure for managing liquidity overhang.
RBI says 25% I-CRR to be released on Sept 9
RBI said 25% of the amount of I-CRR maintained by banks will be released on Saturday and another 25% on September 23. The rest will be released on October 7. With the imposition of I-CRR, RBI has managed to drain out excess liquidity from the banking system