HomeWhat's TrendingRBI to Discontinue Incremental Cash Reserve Ratio in a Phased Manner

RBI to Discontinue Incremental Cash Reserve Ratio in a Phased Manner

In a recent development, the Reserve Bank of India (RBI) announced its decision to gradually discontinue the Incremental Cash Reserve Ratio (I-CRR). The central bank aims to implement this change in a phased manner to ensure the stability of the financial system and prevent any abrupt disruptions in the money markets.

The RBI stated that the amounts held under the I-CRR would be released in stages. This approach is designed to avoid sudden shocks to the system’s liquidity and to maintain the orderly functioning of the money markets. Here’s the release schedule:

September 9, 2023: The RBI will release 25 percent of the I-CRR maintained.

September 23, 2023: Another 25 percent of the I-CRR will be released.

October 7, 2023: The remaining 50 percent of the I-CRR will be released.

This decision follows the RBI’s earlier directive, which required banks to maintain a 10 percent Incremental Cash Reserve Ratio (ICRR) starting from August 12. This move was part of the central bank’s strategy to manage excess liquidity in the banking system, particularly in the wake of the withdrawal of the ₹ 2,000 currency note.

RBI Governor Das emphasised that the imposition of the ICRR was a prudent step taken to safeguard financial and price stability. He reassured that banks would still have sufficient liquidity to continue their lending operations.

‘The incremental CRR was considered necessary in the background of the liquidity overhang. We considered it desirable in the interest of financial and price stability. It will have an impact on inflation also. It is a purely temporary measure,’ Das explained.

The RBI’s decision to withdraw the ₹ 2,000 note in May and the subsequent return of a significant portion of these notes to the banking system by July 31 played a pivotal role in the central bank’s approach to managing liquidity. This move underscores the RBI’s commitment to maintaining stability in the financial markets while adapting to changing economic conditions.

Team Vakilsearch