RBI monetary policy: RBI Governor Shaktikanta Das on Thursday said in his monetary policy that banks will have to maintain an incremental cash reserve ratio (I-CRR) of 10 percent with effect from August 12. This measure is intended to absorb the surplus liquidity created in the system due to multiple factors, including the return of ₹2,000 notes.
“It has been decided that with effect from the fortnight beginning August 12, 2023, scheduled banks shall maintain an incremental cash reserve ratio (I-CRR) of 10 percent on the increase in their net demand and time liabilities (NDTL) between May 19, 2023 and July 28, 2023. This measure is intended to absorb the surplus liquidity generated by various factors referred to earlier including the return of ₹2,000 notes to the banking system. This is purely a temporary measure for managing the liquidity overhang. Even after this temporary impounding, there will be adequate liquidity in the system to meet the credit needs of the economy,” said RBI Governor Shaktikanta Das.
In May this year, the Reserve Bank of India (RBI) had decided to withdraw ₹2,000 denomination banknotes from circulation and said that all the notes must be exchanged before September 30.
CRR is the proportion of deposits that banks have to keep as cash with the central bank. Notably, banks do not earn any interest on CRR balances kept with the RBI.
“The ICRR 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. I must add that the existing cash reserve ratio (CRR) remains unchanged at 4.5 percent,” added RBI policy statement.
India's banking system liquidity surplus has averaged around ₹2.5 trillion ($30.18 billion) in August, up from 1.6 trillion rupees in July.
The RBI stopped conducting lower duration variable rate reverse repos nearly a month ago, after auctions were not fully subscribed.
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