Winning Bizness Sports Desk

Mumbai: The Reserve Bank changes the monetary policy from time to time. Many times the amount of cash increases rapidly at a particular time. To counter such a situation, the Reserve Bank has the option of implementing an increased CRR along with the CRR. The Reserve Bank had decided on ICRR (incremental cash reserve ratio) in the credit policy meeting in the month of August to reduce the liquidity in the system. This decision will now be withdrawn in a phased manner resulting in a boom in banking stocks in the stock market. Notably, after the demonetisation of the Rs 2000 notes, the banking system was oversupplied. The RBI had advised banks to maintain 10 percent plus ICRR in NDTL (Net Demand and Time Liabilities) between May 19 and July 28, 2023 to reduce this liquidity i.e. cash holdings. While implementing the ICRR, the Reserve Bank had said it would reconsider the decision on September 8. The RBI had clarified that the further decision will be taken after looking at the cash position in the system

What decision did RBI take?

The Reserve Bank has decided to phase out the increased CRR implemented last month. Incremental CRR will be completely abolished by October 7. 25 percent incremental CRR will be drawn till Saturday September 9. After that, another 25 percent incremental CRR will be drawn on September 23. Cash Reserve Ratio i.e. CRR is a part of Reserve Bank's monetary policy and its objective is to control the supply of cash and inflation in the banking system.

What is the benefit of RBI's decision?

Banks had to keep more in cash with RBI than before. Due to this, the banks were left with less money for disbursement of loans. Now, with the decision to withdraw ICRR, banks will have more money available. This decision is a relief step for banks. Banks will have more money available for disbursement of loans before festivals. So the bank and customers will also benefit from this.