Banks to maintain 10% additional CRR from Aug 12 as temporary measure: RBI

Action is part of central bank's efforts to reduce surplus liquidity, it says after monetary policy announcement

Banks have to maintain a 10 per cent additional cash reserve ratio (CRR) from August 12, said Reserve Bank of India governor Shaktikanta Das on Thursday. The action is part of the central bank's efforts to reduce surplus liquidity.

Das banksthe measure is temporary and the prevailing CRR will remain unchanged. The central bank’s Monetary Policy Committee kept the repo rate unchanged for the third time in a row in this financial year.

“This (additional CRR) will affect the yield on the treasury bills; they might go up,” said a dealer at a state-owned bank. “However, we are confused how it will come into effect. Will it include the percentage of CRR we already maintain, or not? The market is awaiting clarity from the governor.”

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The yield on the benchmark 10-year government bond remained steady at 7.17 percent as the policy decision was along the expected lines, dealers said. The rupee also remained stable at Rs 82.83 per US dollar.

“Considering the huge system liquidity available in the banking system, this measure should not majorly affect the banking industry. It is just a temporary measure to control the incoming huge liquidity post demon of 2000 rupee notes. It has to be noted that the RBI hasn't held any VRRR auction this month considering the above move,” said Venkatakrishnan Srinivasan, a bond market veteran and founder and managing partner of Rockfort Fincap LLP.

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“With the assumption of limited impact on system liquidity, there is no immediate volatility in 10 year gsec yields,” he said.