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Context: To deal with the excess liquidity in the banking system, which was partly caused by the inflow of Rs 2,000 notes, the RBI announced the Incremental Cash Reserve Ratio (I-CRR) on August 10, 2023. This was a temporary measure to mop up the extra cash and maintain the stability of the financial system.

Details

• The Reserve Bank of India (RBI) introduced the I-CRR (Incremental Cash Reserve Ratio) on August 10, 2023, as a temporary measure to absorb excess liquidity from the banking system. This decision was made to address the surplus liquidity generated by various factors, including the return of Rs 2,000 notes to the banking system, RBI's surplus transfer to the government, increased government spending, and capital inflows. The excessive liquidity in the system was seen as a potential risk to price stability and financial stability.
• After reviewing the liquidity conditions, the RBI has decided to discontinue the I-CRR in a phased manner. The aim is to release the impounded funds gradually to avoid sudden shocks to the system and ensure that money markets function smoothly.
• The RBI has outlined a schedule for releasing the funds maintained by lenders under the I-CRR:
  • 25% of the funds will be released on September 9.
  • Another 25% will be released on September 23.
  • The remaining 50% will be released on October 7.
• The phased release of funds is intended to provide banks with sufficient liquidity to meet higher credit demand during the upcoming festival season.

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INCREMENTAL CRR: https://www.iasgyan.in/daily-current-affairs/incremental-crr#:~:text=Incremental%20CRR%20is%20a%20specialized,on%20banks%20and%20financial%20markets.

https://indianexpress.com/article/explained/explained-economics/rbi-discontinue-i-crr-8930573/

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