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RBI to discontinue Incremental Cash Reserve Ratio to absorb excess liquidity after demonetisation of Rs 2,000 notes

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The Reserve Bank of India (RBI) decided to discontinue the Incremental Cash Reserve Ratio (I-CRR), which was put in place to absorb surplus liquidity following the withdrawal of 2,000 rupees currency notes, in a phased manner beginning today.

On August 10, the RBI mandated banks to maintain an incremental cash reserve ratio (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 measure was intended to absorb the surplus liquidity generated by various factors, including the return of 2,000 rupee notes to the banking system.

The central bank in its statement said that 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 RBI further said 25 percent of the amount of I-CRR maintained by banks will be released tomorrow and another 25 percent on September 23. The rest will be released on October 7

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