Requirement For Maintaining Additional Cash Reserve Ratio (CRR)

Posted On - 9 September, 2023 • By - Darshit Shah

The Reserve Bank of India has changed the Cash Reserve Ratio criteria for banks. This regulation aims to regulate the amount of liquidity in the banking sector. As a result, the Reserve Bank of India published a notification on August 10, 2023, with the following number: RBI/ 2023-24/ 52 DOR. RET. REC. 29/ 12.01.001/ 2023 – 24 on the need to retain extra Cash Reserve Ratio.

According to Section 42(1) of the Reserve Bank of India Act of 1934, all scheduled banks must maintain a Cash Reserve Ratio with the Reserve Bank of India. Cash Reserve Ratio is the percentage of a bank’s total deposits that it is required to hold in reserve with the central bank. This tool of monetary policy is used by the Reserve Bank of India to control the amount of money in the economy.

In response to the present liquidity constraints, the Reserve Bank of India has issued a directive in accordance with Section 42(1A) of the Reserve Bank of India Act, 1934. All Scheduled Commercial Banks, Regional Rural Banks, Scheduled Primary (Urban) Co-Operative Banks, and Scheduled State Co-Operative Banks must comply with the directive and maintain with the RBI an incremental Cash Reserve Ratio (I-CRR) of 10% on increases in Net Demand and Time Liabilities (NDTL) between May 19 and July 28, 2023, with effect from the beginning of the next two weeks on August 12, 2023. On or before September 8, the I- Cash Reserve Ratio i.e. CRR will be evaluated.

The demonetization of Rs. 2,000 notes, which was announced by the Reserve Bank of India, resulted in substantial deposits entering banks. To remove some of this liquidity from the system, the directive policy was released. Reserve Bank of India is assuring banks and financial institutions that this move is transitory and that, if liquidity is absorbed before the festive season, Reserve Bank of India may restore the impounded cash to the banks and financial institutions.

The Reserve Bank of India lead representative Mr. Shaktikanta Das further guaranteed during a question and answer session that this is the most ideal choice under the ongoing conditions and there is sufficient liquidity in the framework for the banks to proceed with their lending operations.