The Reserve Bank of India (RBI) on Friday said that it will discontinue Incremental Cash Reserve Ratio (ICRR) in a phased manner. ICRR will completely be removed by October 7.
25 per cent of the ICRR will be released on September 9 said RBI. Another 25 per cent will be released on September 23 and the pending 50 per cent will be released on October 7.
With the ICRR removed the banks will have additional liquidity, which may impact on the loan rates and it may also decrease in yields.
"On a review, it has been decided to discontinue the I-CRR in a phased manner," the central bank said in a statement.
RBI's decision to impose ICRR
ICRR of 10 per cent on deposits collected by banks was imposed by the RBI from August 12 to absorb the surplus liquidity due to multiple factors that also include the return of ₹2,000 notes. However, it could also be considered that the RBI had taken this decision in order to counter the rising inflation.
While announcing the I-CRR, RBI Governor Shaktikanta Das had indicated that the provision was a temporary measure for managing the liquidity overhang.
Following the withdrawal of the Rs 2,000 notes, the liquidity with the banks had surged significantly, the I-CRR was aimed to absorb the excess cash.
As much as 93 per cent of Rs 2000 currency notes that were in circulation on May 19 -- the day when the currency was withdrawn from circulation -- have been returned to banks.
The total value of Rs 2000 banknotes received back from circulation is Rs 3.32 lakh crore up to August 31, 2023.
With input from Agencies