RBI asks banks to temporarily maintain incremental CRR

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The Reserve Bank of India (RBI) has asked banks to maintain an incremental Cash Reserve Ratio (ICRR) of 10 per cent on the increase in their deposits between May 19 and July 28 to suck out excess liquidity in the banking system.

The CRR, which is the cash parked by the banks in their specified current account maintained with RBI, however continues at 4.5 per cent of banks’ deposits.

“In recent years, our stated stance on liquidity is to maintain adequate liquidity in the system to meet the productive requirements of the economy. Excessive liquidity, on the other hand, can pose risks to price stability and also to financial stability.

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“Hence, efficient liquidity management requires continuous assessment of the level of surplus liquidity so that additional measures are taken as and when necessary to impound the element of excess liquidity,” Governor Shaktikanta Das said.

Accordingly, 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 per cent on the increase in their net demand and time liabilities (NDTL) or deposits between May 19, 2023 and July 28, 2023, he added.

Banking expert V Viswanathan said the growth in DTL between May 19th and July 28th has been ₹6.78 lakh crore. So, 10 per cent of this implies that liquidity amounting to ₹67,800 crore will be impounded.

Das observed that 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.

“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 per cent,” he said.