Banking system liquidity rises over Rs 14,500 cr after I-CRR Phase-I reversal

Reserve Bank of India

The liquidity in the banking system surged by over Rs 14,500 crore on September 11 after the first phase reversal of Incremental Cash Reserve Ratio (I-CRR) by the Reserve Bank of India (RBI).

According to the RBI’s money market operations data, liquidity in the banking system scaled to Rs 90,721.44 crore as on September 10 from Rs 76,047.44 crore as on September 7.

“ICRR money has been released into system that led to an increase in system liquidity. The amount released was almost Rs 25,000 crore,” said Umesh Kumar Tulsyan, managing director of Sovereign Global Markets, a New Delhi-based fund house.

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The rise is seen after the 25 percent funds was released by the central bank on September 9, dealers said. A day before, the central bank took the decision to discontinue the I-CRR in a phased manner, after the review.

It added that the amount under I-CRR would be released in stages, so that system liquidity is not subjected to sudden shocks and money market function in an orderly manner.

In this, the RBI said that 25 percent of the funds maintained in the I-CRR would be released on September 9 and 25 percent on September 23. The remaining 50 percent will be released on October 7.

On August 10, the RBI asked scheduled banks to maintain an I-CRR of 10 percent on the increase in their net demand and time liabilities (NDTL) between May 19 and July 28.

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The measure was intended to absorb the surplus liquidity generated by various factors, including the return of Rs 2,000 notes to the banking system.

Money market dealers said the liquidity surplus will outpace the outflows from the banking system. In this month, the banking system is likely to see pressure from heavy outflows on account of advance tax and goods and services tax payments.

But, phased withdrawal of I-CRR is likely to ease that pressure, dealers said.