In order to absorb the surge in liquidity in banking system following demonetisation of high value notes, the Reserve Bank introduced an incremental Cash Reserve Ratio (CRR) of 100 per cent .
CRR is the portion of the deposits which banks are required to park to the RBI. Currently it is at 4 per cent.
- As per the RBI guidelines, “on the increase in NDTL (net demand and time liabilities) between September 16 and November 11 scheduled banks shall maintain an incremental CRR of 100 per cent, effective the fortnight beginning November 26, 2016.”
- RBI said it will review the decision on December 9 or earlier as the incremental CRR is intended to be a temporary measure within RBI’s liquidity management framework to drain excess liquidity in the system. The regular CRR would however continue to be at 4 per cent.
With the withdrawal of the legal tender status of Rs 500 and Rs 1,000 denomination bank notes beginning November 9, 2016, there has been a surge in deposits relative to the expansion in bank credit, leading to large excess liquidity in the system,
Reserve Bank of India:
The Reserve Bank of India is India’s central banking institution, which controls the monetary policy of the Indian rupee. It commenced its operations on 1 April 1935 during the British Rule in accordance with the provisions of the Reserve Bank of India Act, 1934.
The original share capital was divided into shares of 100 each fully paid, which were initially owned entirely by private shareholders.Following India’s independence on 15 August 1947, the RBI was nationalised on 1 January 1949.