Context: The Reserve Bank of India has decided to discontinue the incremental Cash Reserve Ratio (I-CRR) in a phased manner. The measure was intended to absorb the surplus liquidity generated by various factors, including the return of ₹2000 notes to the banking system.
Incremental cash reserve ratio (ICRR)
o Limitations: The bank cannot use this amount for lending and investment purposes and does not get any interest from the RBI.
o Exclusion: CRR applies to scheduled commercial banks, while the regional rural banks and NBFCs are excluded.
o Present requirement: Currently, banks are required to uphold 4.5% of their Net Demand and Time Liabilities (NDTL) as CRR with the RBI.
o It is applied to the incremental increase in deposits made by customers within a certain period. It was introduced on August 10, 2023, as a temporary measure by RBI to absorb surplus liquidity.
Net Demand and Time Liabilities (NDTL): It is the difference between the sum of demand and time liabilities (deposits) of a bank (with the public or the other bank) and the deposits in the form of assets held by the other bank.
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