RBI decides to withdraw incremental CRR in phased manner and release it by Oct 7
RBIhas said that 25% of the amount of I-CRR maintained by banks will be released on Saturday and another 25% on September 23.
- Releasing money in tranches helps to smoothen out liquidity and avoid sudden gush of funds, says Madan Fadnavis of Bank of Baroda.
The Reserve Bank on Friday decided to discontinue the
The measure was intended to absorb the surplus liquidity generated by various factors, including the return of Rs 2,000 notes to the banking system.
"On a review, it has been decided to discontinue the I-CRR in a phased manner," the central bank said in a statement.
There is surplus liquidity in system of around Rs 75,000 cr of late, according to Madan Sabnavis, chief economist at Bank of Baroda. He adds, "Releasing money in tranches helps to smoothen out liquidity and avoid sudden gush of funds."
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, it added.
The RBI said 25% of the amount of I-CRR maintained by banks will be released on Saturday and another 25% on September 23. The rest will be released on October 7.
While announcing the I-CRR, RBI Governor
The RBI had announced that the I-CRR would 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.
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As much as 93% of Rs 2000 currency notes that were in circulation on May 19 -- the day when the currency was withdrawn from circulation -- have been returned to banks.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 advance tax payments are due next week which will put pressure on liquidity further.
The total value of Rs 2000 banknotes received back from circulation is Rs 3.32 lakh crore up to August 31, 2023. Fadnavis adds, "The question is whether this will be adequate next week when there are tax outflow. This is because the amount coming in of around Rs 25-27,000 cr will cover the outflow through the V3R today and will not leave much surplus."
(With text inputs from PTI)
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