Incremental Cash Reserve Ratio Introduced

In order to absorb the surge in liquidity of banking system following the demonetisation of high value notes, the Reserve Bank introduced an incremental Cash Reserve Ratio of 100 per cent.

CRR is the portion of the deposits which banks are required to park to the RBI.

Currently it is at 4 per cent.

RBI will review the decision on 9th of December or earlier.

The incremental CRR is intended to be a temporary measure within RBI’s liquidity management framework to drain excess liquidity in the system.

The regular CRR would however continue to be at 4 per cent.

The move is estimated to suck out around Rs 3.24 lakh crore excess liquidity from the system and will be applicable on deposits between September 16 and November 11 fortnights.

As per RBI data, total deposits rose from Rs 97 lakh core in the September 16 fortnight to Rs 101.1 lakh crore in the November 11 fortnight.

Banks have already parked a record Rs 4.3 lakh crore with RBI in return of bonds as of November 22.

Part of RBI’s liquidity management tools, CRR ensures that banks do not run out of cash when depositors demand money and it is also used by the central bank to check inflation.

In view of the problem of mounting deposits it has decided to revive the Guarantee Scheme wherein banks can deposit the notes directly with the offices of RBI under whose jurisdiction they are located.