The RBI has announced a phased withdrawal of the incremental cash reserve ratio

Description

In response to changing liquidity conditions, the Reserve Bank of India (RBI) has announced a plan to gradually phase out the Incremental Cash Reserve Ratio (I-CRR). This deliberate step attempts to keep the financial system stable and money markets running smoothly.

Phased Release Of I-CRR

The RBI has proposed releasing the I-CRR monies in stages. 25% of the I-CRR will be released on September 9, followed by another 25% on September 23. On October 7, the remaining 50% of the I-CRR will be released.

The History Of The I-CRR

Shaktikanta Das, the RBI Governor, announced the I-CRR, which requires all scheduled banks to maintain a 10% reserve ratio on any growth in their net demand and time liabilities (NDTL) between May 19, 2023 and July 28, 2023. The goal was to absorb excess liquidity caused by a variety of circumstances, including the return of 2,000 notes into the financial system.

Temporary Liquidity Management Measure

Governor Das stressed that the I-CRR was always meant to be a "temporary measure" to deal with the liquidity surplus. According to the RBI's internal estimations, the net impact of this increased CRR was somewhat more than 1 lakh crore.

The progressive withdrawal of the I-CRR is a key move in India's monetary policy, with the goal of maintaining financial stability and managing liquidity in a regulated manner.

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