India central bank to wind down incremental cash reserve ratio in phases

THE Reserve Bank of India (RBI) will wind down, in phases, the incremental cash reserve ratio (I-CRR) requirement imposed on banks by Oct 7, it said on Friday (Sep 8).

The RBI said it will release 25 per cent of the I-CRR funds on Sep 9, another 25 per cent on Sep 23 and the rest on Oct 7.

“Based on an assessment of current and evolving liquidity conditions, it has been decided that the amounts impounded under the I-CRR would be released in stages so that system liquidity is not subjected to sudden shocks and money markets function in an orderly manner,” the RBI said in a statement.

In August, the RBI had asked banks to hold an I-CRR of 10 per cent on the increase in deposits between May 19 and Jul 28, withdrawing over 1 trillion rupees (S$16.4 billion) of banking system liquidity.

On Wednesday, Reuters reported, citing sources, that market participants expected the RBI to continue with I-CRR, with some tweaks to the proportion.

Market participants had expected the ratio to be lowered to 5 per cent to 8 per cent ahead of twin tax outflows that are due over the next two weeks. REUTERS