Earlier this year the RBI directed scheduled banks to maintain an incremental cash reserve ratio of 10% in their net demand and time liabilities (NDTL). RBI has now decided to discontinue the same in phased manner over the next month.
Incremental cash reserve ratio is the additional cash balance that RBI can ask the scheduled banks to maintain over and above cash reserve ratio, the minimum amount of the total deposits that banks have to keep with the central bank, for a specific period. It is a mechanism to control liquidity in the economy. It was introduced this time to absorb the surplus liquidity generated by various factors, including the return of ₹2000 notes to the banking system.
RBI has decided to allow release of amounts impounded under incremental cash reserve ratio in a phased manner so that system liquidity is not subjected to sudden shocks and money markets function in an orderly manner.
RBI circular is enclosed for the reference of the readers.
Readers can also share their views with Regstreet Law Advisors at info@regstreetlaw.com.
Readers can also share their views with Regstreet Law Advisors at info@regstreetlaw.com.