The Reserve Bank of India declared that it would be discontinuing the incremental cash reserve ratio, abbreviated as I-CRR. The apex bank will be discontinuing in a phased manner.
It was on August 10, 2023, that RBI introduced I-CRR in order to absorb the surplus liquidity emerging due to numerous factors, such as the return of Rs. 2,000 notes to the banking system. It was stated by the regulator that the I-CRR was actually a temporary measure. The measure is to be reviewed on September 8.
What has the RBI stated?
The RBI stated that after a review, the RBI has decided to discontinue the I-CRR.
“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,” stated the RBI in a release.
According to the schedule, the RBI is going to release the 25 percent of funds that are maintained by the lender under I-CRR on 9th September.
On September 23, the rest 25 percent of the amount maintained under I-CRR is to be released. The remaining 50 percent is to be released on October 7, as per the RBI.
This implies that banks will have enough funds to meet higher credit demand in the near future.
The introduction of I-CRR
After announcing the monetary policy, Shaktikanta Das, RBI Governor, on August 10, stated that banks are supposed to maintain an I-CRR of 10 percent on their NDTL (net demand and time liabilities) increase between May 19 and July 28, 2023. It came into effect starting from August 12.
The Reserve Bank of India stated that it is going to review the I-CRR on September 8 or even earlier with the intent to return the impounded funds to the banking system. The CRR however is unchanged at 4.5 percent.
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Source: vcmp.edu.vn