Journalism of Courage
The Reserve Bank of India (RBI) on Thursday asked banks to set aside a larger part of incremental deposits under cash reserve ratio (CRR) to tighten liquidity in the near term.
Banks shall maintain an incremental CRR of 10% on increase in deposits between May 19 and July 28, with effect from the fortnight starting Aug. 12, RBI Governor Shaktikanta Das said in his monetary policy announcement.
Das however added that the measure was temporary to absorb liquidity generated by a return of high denomination notes, a move that was announced by the RBI in mid-May.
“This is purely a temporary measure for managing the liquidity overhang. Even after this temporary impounding, there will be adequate liquidity in the system to meet the credit needs of the economy,” Das said.
Das further added that the measure will be reviewed on Sept. 8 or earlier with a view to returning the impounded funds to the banking system ahead of the festival season.
India’s banking system liquidity surplus has averaged around 2.5 trillion Indian rupees ($30.18 billion) in August, up from 1.6 trillion rupees in July.
The RBI stopped conducting lower duration variable rate reverse repos nearly a month ago, after auctions were not fully subscribed.
“Banks will have to maintain excess CRR for the next two fortnights, and that would lead to an immediate removal of some portion of the current surplus,” a trader with a private bank said.
“The amount that could be withdrawn seems to be less than one trillion rupees,” the trader, who did not want to be named as he is not authorised to speak to media, added.
