The incremental cash reserve ratio, or I-CRR, that was implemented in August to absorb the surplus liquidity from the financial system will be discontinued in phases, the Reserve Bank of India said Friday. "On a review, it has been decided to discontinue the I-CRR in a phased manner," the RBI said in a statement.
"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 central bank said 25 percent of the funds under I-CRR would be released on September 9, another 25 percent on September 23 and the remaining 50 percent on October 7.
Following the monetary policy session in August, RBI Governor Shaktikanta Das had said <a href=https://www.rttnews.com/3383564/india-central-bank-holds-rates-steady.aspx target=_blank >scheduled banks must maintain I-CRR of 10 percent</a> on the increase in their net demand and time liabilities between May 19 and July 28.
The measure was intended to absorb the surplus liquidity generated by various factors, including the return of INR 2,000 denomination currency notes to the banking system, the central bank said. The RBI had indicated that the I-CRR was a temporary measure for managing the liquidity overhang and that it will be reviewed on September 8 or earlier with a view to returning the impounded funds to the banking system ahead of the festival season.
