RBI move will suck out Rs 95,000 crore liquidity from banking system
RBI) Governor Shaktikanta Das found a smarter option to absorb surplus liquidity in the banking system — the imposition of incremental CRR. Banking industry analysts say the move will suck out additional liquidity worth around Rs 90,000-95,000 crore from the system.
Under the new guidelines, banks will have to keep an additional Rs 10 in cash compared to the Rs 4 usually required for every Rs 100 incremental deposit received. Flush with liquidity after withdrawal of Rs 2,000 notes, banks had received Rs 3.14 lakh crore till 31st July as a result, which is, almost 88% of the total Rs 2,000 notes in circulation.
«Hiking the CRR would have had monetary policy connotations, so the temporary increase is aimed to be a non-disruptive way of dealing with the issue of excess liquidity in the system in the backdrop of the recent demonetisation of the Rs 2,000 notes,» Aurodeep Nandi, India Economist and Vice President at Nomura, said. The move will exert upward pressure on sentiment and hence interest rates.
«We can assume that this will be reversed before the festival/busy season as the RBI could have gone in for OMO to permanently take out liquidity from the system,» said Madan Sabnavis, Chief Economist, Bank of Baroda. While stating that excessive liquidity can pose risks to price stability and also to financial stability, Das with effect from the fortnight beginning August 12, 2023, scheduled banks shall maintain an incremental CRR of 10% on the increase in their net demand and time liabilities (NDTL) between May 19, 2023 and July 28, 2023.
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