Reserve Bank Of India To Roll Back I-CRR In Phased Manner

The Reserve Bank of India has decided to roll back incremental cash reserve ratio, or I-CRR, in a phased manner following a review on Friday.

"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 in a statement.

According to the timeline announced by the RBI, the funds under I-CRR will be released to banks in the following manner:

• 25% of the I-CRR maintained to be released on Sept. 9.

• 25% to be released on Sept 23.

• Last 50% to be released on Oct 7.

At the Monetary Policy Committee meet in early August, the central bank had decided that with effect from the fortnight beginning Aug. 12, scheduled banks shall maintain an incremental cash reserve ratio of 10% of the increase in their net demand and time liabilities between May 19 and July 28. Existing cash reserve ratio was kept unchanged at 4.5%.

The measure was intended to absorb the surplus liquidity generated by various factors, including the return of Rs 2,000 notes to the banking system. RBI Governor Shaktikanta Das had stated the measure was purely temporary for managing the liquidity overhang.

"In recent years, our stated stance on liquidity is to maintain adequate liquidity in the system, to meet the productive requirements of the economy," Das had said in the last monetary policy committee resolution, in August. Excessive liquidity, on the other hand, can pose risks to price stability and also to financial stability, he had said.