The Reserve Bank of India (RBI) has announced the discontinuation of the incremental cash reserve ratio (I-CRR) requirement, which mandated scheduled banks to maintain a 10 percent reserve on the growth of their net demand and time liabilities (NDTL). Consequently, the funds held under this mandate will be gradually released over a period.

This move is aimed at safeguarding the stability of the financial system by avoiding sudden shocks to liquidity and ensuring the orderly functioning of money markets, as stated in an RBI press release issued on Friday.

In accordance with RBI Governor Shaktikanta Das's monetary policy statement dated August 10, 2023, scheduled banks were obliged to maintain an I-CRR of 10 percent on the expansion of their NDTL between May 19, 2023, and July 28, 2023. This measure was introduced to absorb excess liquidity arising from various factors, including the reintroduction of Rs 2,000 notes into the banking system.

It was previously conveyed that the I-CRR was a temporary measure designed to manage the excess liquidity and would be reconsidered on or before September 8, 2023, with the intention of returning the impounded funds to the banking system before the festival season.

Following a review, the RBI has now decided to phase out the I-CRR. The decision to release the funds in stages is based on an assessment of current and evolving liquidity conditions, ensuring that system liquidity remains stable and that money markets operate smoothly.

The scheduled release of funds is as follows:

On September 9: 25 percent of the I-CRR to be maintained.
On September 23: Another 25 percent of the I-CRR to be maintained.
On October 7: The remaining 50 percent of the I-CRR to be maintained.

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