RBI to restore cash reserve ratio in 2 phases to 4% over improved liquidity

The Reserve Bank on Friday decided to restore the cash reserve ratio (CRR) in a phased manner to 4 per cent in light of improved liquidity condition in the market.

The CRR is the percentage of the total deposit that banks have to mandatorily park with the apex bank. The move to raise CRR would suck about Rs 1.37 lakh crore primary liquidity from the banking system.

To help banks tide over the disruption caused by COVID-19, the CRR of all banks was reduced by 100 basis points to 3.0 per cent of net demand and time liabilities (NDTL) effective from the reporting fortnight beginning March 28, 2020.

The dispensation was available for a period of one year ending March 26, 2021.

"On a review of monetary and liquidity conditions, it has been decided to gradually restore the CRR in two phases in a non-disruptive manner. Banks would now be required to maintain the CRR at 3.5 per cent of NDTL effective from the reporting fortnight beginning March 27, 2021 and 4.0 per cent of NDTL effective from fortnight beginning May 22, 2021," RBI Governor Shaktikanta Das said.

RBI last reduced the CRR in November 2011 by 25 basis points from 4.25 per cent to 4 per cent.

RBI on March 27, 2020 allowed banks to avail funds under the marginal standing facility (MSF) by dipping into the Statutory Liquidity Ratio (SLR) up to an additional one per cent of net demand and time liabilities (NDTL), i.e., cumulatively up to 3 per cent of NDTL.

This facility, which was initially available up to June 30, 2020 was later extended in phases up to March 31, 2021 providing comfort to banks on their liquidity requirements and also to enable them to meet their Liquidity Coverage ratio (LCR) requirements.

This dispensation provides increased access to funds to the extent of Rs 1.53 lakh crore and qualifies as high-quality liquid assets (HQLA) for the LCR, he said.

With a view to providing comfort to banks on their liquidity requirements, it has now been decided to continue with the MSF relaxation for a further period of six months, i.e., up to September 30, 2021, he added.