RBI To Discontinue Incremental Cash Reserve Ratio In A Phased Manner

The RBI has mandated banks to maintain an I-CRR of 10 per cent on the increase in their net demand and time liabilities (NDTL) between May 19, 2023 and July 28, 2023

The I-CRR mechanism was put in place by the central bank to absorb surplus liquidity following the withdrawal of Rs 2,000 currency notes.

The Reserve Bank of India (RBI) has decided to discontinue the Incremental Cash Reserve Ratio (I-CRR) in a phased manner. The I-CRR mechanism was put in place by the central bank to absorb surplus liquidity following the withdrawal of Rs 2,000 currency notes. The RBI has mandated banks to maintain an I-CRR of 10 per cent on the increase in their net demand and time liabilities (NDTL) between May 19, 2023 and July 28, 2023. 

The RBI in a statement on Friday said, "The measure (I-CRR) was intended to absorb the surplus liquidity generated by various factors, including the return of Rs 2,000 notes to the banking system. It was indicated that the I-CRR is a temporary measure for managing the liquidity overhang and that the I-CRR 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."

Following which RBI "decided to discontinue the I-CRR in a phased manner," the statement said. 

"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," the central bank added. 

25 per cent of the amount of I-CRR maintained by banks will be released on Saturday and another 25 per cent on September 23, as per the RBI directive. The rest will be released on October 7.

The RBI has informed that 93 per cent of Rs 2,000 currency notes have been returned to banks as of August 31, following their withdrawal announced on May 19. The RBI also said that only notes worth Rs 24,000 crore remain in circulation by the end of August, as per the data received from the banks. The total value of Rs 2,000 banknotes received back from circulation stood at Rs 3.32 lakh crore till August 31, 2023, the statement noted.