The Reserve Bank of India (RBI) has announced its decision to phase out the incremental cash reserve ratio (I-CRR). In a press release on September 8, RBI stated that it will discontinue the I-CRR in a phased manner to ensure that system liquidity is not subjected to sudden shocks and money markets continue to function orderly.
The central bank has outlined the schedule for releasing the impounded amounts under the I-CRR as follows:
– 25 percent of the I-CRR maintained on September 9, 2023, will be released.
– Another 25 percent will be released on September 23, 2023.
– The remaining 50 percent of the I-CRR maintained will be released on October 7, 2023.
This decision follows the earlier directive by RBI, requiring banks to maintain a 10 percent incremental cash reserve ratio (ICRR) starting from August 12. The ICRR was introduced as part of RBI’s efforts to manage excess liquidity in the banking system after the withdrawal of the Rs 2,000 currency note.
RBI Governor Shaktikanta Das emphasized that the central bank had imposed the ICRR to maintain financial and price stability. He also assured that banks would have sufficient liquidity for their lending operations. The incremental CRR was considered a temporary measure to address the liquidity overhang and its potential impact on inflation.
In May, RBI announced the withdrawal of the Rs 2,000 note, allowing citizens to either exchange or deposit the notes in their accounts. As of August 1, RBI reported that Rs 3.14 lakh crore worth of Rs 2,000 banknotes, equivalent to 88 percent of those in circulation, had been returned to the banking system.
