RBI Policy: Incremental CRR spooks banking stocks; here is how it will impact banks - explained
Shaktikanta Das in his monetary policy statement on Thursday announced that all scheduled banks will have to maintain a 10% incremental cash reserve ratio (ICRR) from August 12. The ICRR of 10% will be on the increase in the banks’ net demand and time liabilities (NDTL) between May 19, 2023, and July 28, 2023.
“This measure is intended to absorb the surplus liquidity generated by various factors including the return of ₹2,000 notes to the banking system," Governor Das said, reiterating that it was purely a “temporary measure for managing the liquidity overhang". Liquidity surplus in the banking system has averaged around ₹2.5 lakh crore in August, up from ₹1.6 lakh crore in July, pushing down overnight borrowing and lending rates.
The ICRR will be reviewed on September 8, 2023 or earlier with a view to returning the impounded funds to the banking system ahead of the festival season. Also Read: RBI Policy Meeting Highlights: RBI Governor Shaktikanta Das delivers ‘hawkish pause’; remains cautious on inflation On May 19, the RBI had announced the withdrawal of the ₹2,000 note from circulation and allowed citizens to exchange or deposit the notes in their accounts.
By July 31, ₹3.14 lakh crore worth of ₹2,000 banknotes, or 88% in circulation, had returned to the banking system, as per RBI. The ICRR is a temporary measure aimed at sucking the excess liquidity from the banking system.
The net impact of the incremental CRR, as per RBI’s internal calculation, will be a little over ₹1 lakh crore, Governor Das said while addressing media in his post-policy conference. "The Incremental CRR was the best option at the current juncture, but it was not the only tool available to us to deal with the liquidity overhang… The ICRR was
. Read more on livemint.com
