Latest about ICRR (Incremental Cash Reserve Ratio)
On 08th Sept 2023, RBI has decided to discontinue the I-CRR (Incremental Cash Reserve Ratio) in a phased manner. The press release by RBI is quoted below:
“In pursuance of Governor’s Monetary Policy Statement of August 10, 2023, scheduled banks were required to maintain an incremental cash reserve ratio (I-CRR) of 10 per cent on the increase in their net demand and time liabilities (NDTL) between May 19, 2023 and July 28, 2023. The measure was intended to absorb the surplus liquidity generated by various factors, including the return of ₹2000 notes to the banking system.
It was indicated that the I-CRR is a temporary measure for managing the liquidity overhang and that the I-CRR 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.
On a review, it has been decided to discontinue the I-CRR in a phased manner. 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.
Details relating to the winding down of the I-CRR are being notified separately.”
Lets us know more about ICRR and its effects
What is ICRR in banking/ economy:
The Full Form of ICRR: Incremental Cash Reserve Ratio:
ICCR means the additional portion of deposit that banks are made to hold as CASH similar to CRR with central bank of any country. This is used as a tool to manage the amount of cash circulating in the economy of any country.
This is also done to ensure that banks have enough funds available in case of excessive demand from customers and to control excess flow of money in the country.
What is the use or Effect of ICCR:
ICCR indirectly impacts the spending, investment and overall economic activity as by adjusting the requirement %, central banks keeps control over the flow of money in country.
When the last ICRR was introduced:
RBI can introduce ICRR as per their policy but it was last introduced during May 19, 2023 to July 28,2023 in which it was required by scheduled banks to maintain increased 10 percent reserve on the increase in their NDTL.
RBI had already indicated that ICRR would be reviewed in September 2023 or earlier in order to control the inflation.
Now RBI has decided to incrementally decrease the hold of CRR as per the schedule informed by RBI in its official press release.
ICRR impact on liquidity:
As similar to CRR, increasing the I-CRR decreases the liquidity in the economy as banks have to maintain increased cash at RBI without any interest being paid on it. Banks are currently asked to maintained 4.5% of their Net Demand and Time Liabilities as CRR with the RBI.
Simiarly on decreasing the CRR, liquidity in market increases.
RBI has decided to release the iCRR impounded by the decision on August 10.2023 in staggered manner as per details given below:
The release of funds would be as follows:
|Date||Amount to be released (₹ crore)|
|September 9, 2023||25 per cent of the I-CRR maintained|
|September 23, 2023||25 per cent of the I-CRR maintained|
|October 7, 2023||50 per cent of the I-CRR maintained|
It is estimated that the steps taken by RBI to reduce the ICRR will increase the lending power of bank and also help in increasing liquidity in economy keeping in view the upcoming festive seasons in indian diaspora.
In August, the central bank mandated all scheduled banks to maintain an incremental CRR of 10% on the increase in their net demand and time liabilities. The measure is in place temporarily, and the RBI will review it on or before Sept. 8. The existing CRR was kept unchanged at 4.5%. Official press release: click here
Must read: SBI ePM Svanidhi details