 "RBI to discontinue incremental cash reserve ratio in a phased manner")
The Reserve Bank of India (RBI) announced on Friday that it has decided to phase out the incremental cash reserve ratio (I-CRR). The rule was introduced on August 10.
In a statement, the central bank noted that the measure aimed to soak up surplus liquidity generated by various factors, including the re-entry of Rs 2,000 notes into the banking system.
"It was signalled that the I-CRR is a short-term step for managing the excess liquidity, and it will be reviewed on September 8 2023, or earlier, with a goal of returning the sequestered funds to the banking system ahead of the festive season," it said.
"Upon review, the decision has been taken to phase out the I-CRR," the RBI noted.
The sums held under the I-CRR will be released in stages to ensure that system liquidity is not exposed to abrupt shifts and that the money markets operate in a smooth manner," the bank continued.
On September 9, 25 per cent of the maintained amount will be released. A further 25 per cent will be released on September 23.
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On October 7, the remaining 50 per cent will be released.
RBI Governor Das had, on August 10, announced the imposition of a 10 per cent I-CRR on banks for a "restricted duration". He indicated that it was projected to withdraw liquidity worth Rs 1 trillion from the banking system.
While unveiling the move, Das noted that the reintroduction of Rs 2,000 notes since May 19 this year has resulted in cases of surplus liquidity, which is why the measure is being introduced.