With a move to managing the excess liquidity in the system banking regulator Reserve Bank of India announced on Saturday that it would absorb a part of this extra cash by applying an incremental cash reserve ratio (CRR) as a purely temporary measure.
The CRR remains unchanged at 4 percent of outstanding net demand and time liabilities (NDTL).
On the increase in NDTL between September 16, 2016 and November 11, 2016, scheduled banks shall maintain an incremental CRR of 100 percent, effective the fortnight beginning November 26, 2016, read the RBI note.
This is intended to absorb a part of the surplus liquidity arising from the return of specified banking notes (SBN) to the banking system. This move shall be reviewed on December 9, 2016 or even earlier, added the note.
The Reserve Bank has also separately revived the Guarantee Scheme to enable deposit of SBN balances at the Reserve Bank or at currency chests and get immediate value. This measure should also facilitate banks’ compliance with the incremental CRR.
Operational details are set out in a circular issued separately.