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Home Business RBI to restore cash reserve ratio in two phases to 4%

RBI to restore cash reserve ratio in two phases to 4%

Due to disruption attributable to COVID-19, the CRR of all banks was diminished by 100 foundation factors to 3.0%.

The Reserve Bank on Friday determined to restore the cash reserve ratio (CRR) in a phased method to 4% in mild of improved liquidity situation in the market.

The CRR is the proportion of the entire deposit that banks have to mandatorily park with the RBI. The transfer to elevate CRR would suck about Rs 1.37 lakh crore main liquidity from the banking system.

To assist banks tide over the disruption attributable to COVID-19, the CRR of all banks was diminished by 100 foundation factors to 3.0% of internet demand and time liabilities (NDTL) efficient from the reporting fortnight starting March 28, 2020.

The dispensation was accessible for a interval of 1 yr 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% of NDTL effective from the reporting fortnight beginning March 27, 2021 and 4.0% of NDTL effective from fortnight beginning May 22, 2021,” RBI Governor Shaktikanta Das stated.

RBI final diminished the CRR in November 2011 by 25 foundation factors from 4.25% to 4%.

RBI on March 27, 2020 allowed banks to avail funds beneath the marginal standing facility (MSF) by dipping into the Statutory Liquidity Ratio (SLR) up to a further 1% of internet demand and time liabilities (NDTL), i.e., cumulatively up to 3% of NDTL.

This facility, which was initially accessible up to June 30, 2020 was later prolonged in phases up to March 31, 2021 offering consolation to banks on their liquidity necessities and likewise to allow them to meet their Liquidity Coverage ratio (LCR) necessities.

This dispensation supplies elevated entry to funds to the extent of ₹1.53 lakh crore and qualifies as high-quality liquid property (HQLA) for the LCR, he stated.

With a view to offering consolation to banks on their liquidity necessities, it has now been determined to proceed with the MSF leisure for an extra interval of six months, i.e., up to September 30, 2021, he added.

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