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Content

• Introduction
• About Cash Reserve Ratio

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Introduction

In Aug 2023, RBI introduced Incremental CRR to absorb the surplus liquidity created in the system due to multiple factors, including the return of Rs 2,000 notes.

• It was decided that wef from the fortnight beginning Aug 12, 2023, scheduled banks shall maintain an I-CRR of 10% on the increase in their net demand and time liabilities (NDTL) between May 19, 2023, and July 28, 2023.
• This was purely a temporary measure for managing the liquidity overhang.
• Existing CRR remained unchanged at 4.5%.
• Impact:
  • Reduce the supply of money and thus curtail inflation.

In Sep 2023, RBI announced that it will discontinue the I-CRR in a phased manner.

• Why release in phased manner?
  • So that system liquidity is not subjected to sudden shocks and money markets function in a orderly fashion.
• RBI released 25% of I-CRR on 9th, Sep; 25% on 23rd Sep and remaining 50% of the I-CRR on 7th October 2023.

About Cash Reserve Ratio:

• Under RBI Act, 1934 – Scheduled Banks are required to keep a % of their net time and demand deposits (i.e. total deposits of customers) in the form of cash deposits with RBI.

Objectives of CRR:

• Since a part of total deposits in bank is available in the form of cash, it can be used to readily make money available to customers when they demand it.
• Further, RBI also controls the amount of money in market and thus inflation through CRR.

Note:

• Banks don’t get any interest for this money deposited with RBI.
• CRR has to be maintained in cash only.