Sunday, September 24

RBI to phase out incremental cash reserve ratio.

On Friday, the Reserve Bank of India (RBI) announced that it would gradually phase out the incremental cash reserve ratio (I-CRR).

The RBI has announced that the I-CRR will be phased out following a review.

The decision to release the I-CRR amounts in phases was made after examining the current and evolving liquidity conditions, with the aim of maintaining orderly market functioning and avoiding sudden shocks.

On September 9 and September 23, the RBI will release 25% of the I-CRR maintained, while the remaining 50% will be released on October 7.

RBI Governor Shaktikanta Das declared on August 10 that all scheduled banks must maintain a 10% incremental cash reserve ratio (ICRR) from August 12.

The 10% ICRR was due to the rise in net demand and time liabilities (NDTL) of the banks from May 19, 2023, to July 28, 2022.

To maintain liquidity in the system, the central bank introduces a temporary 10% ICRR at the RBI MPC meeting.

The intention of the action, as stated by Governor Das, was to absorb the excess liquidity brought about by various factors, such as the return of 2,000 notes to the banking system.

Nonetheless, he had reiterated that it was solely a “temporary action” to manage the liquidity overhang.

The RBI’s internal calculation revealed that the incremental CRR had a net impact of just over 1 lakh crore.

Banking stocks were positively impacted by the announcement of I-CRR removal, with the Bank Nifty index increasing by 0.61% at 45,150 and Bandhan Bank’s shares falling between 1-2%.

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