RBI to discontinue incremental cash reserve ratio in a phased manner

The Reserve Bank of India (RBI) on Friday announced that it will discontinue the incremental cash reserve ratio (I-CRR) in a phased manner.

“On a review, it has been decided to discontinue the I-CRR in a phased manner,” RBI said in a release.

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.

RBI will release 25% of the I-CRR maintained on September 9 and another 25% on September 23. The remaining 50% of the I-CRR maintained will be released on October 7, the central bank said.

On August 10, the RBI Governor Shaktikanta Das in his monetary policy statement had announced that all scheduled banks will have to maintain a 10% incremental cash reserve ratio (ICRR) from August 12.

The ICRR of 10% was on the increase in the banks’ net demand and time liabilities (NDTL) between May 19, 2023, and July 28, 2023.

Read here: RBI MPC meet: Central bank brings in ‘temporary’ 10% ICRR to maintain liquidity in system

The measure was intended to absorb the surplus liquidity generated by various factors including the return of ₹2,000 notes to the banking system, Governor Das said.

However, he had reiterated that it was purely a “temporary measure for managing the liquidity overhang”.

The net impact of the incremental CRR, as per RBI’s internal calculation, was a little over ₹1 lakh crore.

Meanwhile, the announcement of removal of I-CRR cheered banking stocks with the Bank Nifty index trading 0.61% higher at 45,150 level. Shares of Bandhan Bank, Federal Bank, AU Small Finance Bank, SBI, Bank of Baroda, HDFC Bank and IndusInd Bank rose between 1-2%.