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(RBI) Withdraws Requirement of Incremental CRR to be Maintained by Banks

Reference to RBI circular DBR.No.Ret.BC.41/12.01.001/2016-17 dated November 26, 2016 whereby all scheduled banks were required to maintain, under Section 42(1A), incremental cash reserve ratio (CRR) of 100 per cent of the increase in NDTL between September 16, 2016 and November 11, 2016, effective the fortnight beginning November 26, 2016.

It was intended to absorb a part of the large increase in liquidity in the system following the withdrawal of the legal tender status of Rs. 500 and Rs. 1,000 denomination bank notes. It was also indicated that the incremental CRR was purely a temporary measure and that it would be reviewed on December 9, 2016 or even earlier.

With the enhancement in the ceiling for issue of securities under the Market Stabilisation Scheme (MSS) to Rs. 6,000 billion, it has been decided to withdraw the incremental CRR effective the fortnight beginning December 10, 2016. The liquidity released by the discontinuation of the incremental CRR would be absorbed by a mix of MSS issuances and liquidity adjustment facility (LAF) operations.

Relative notification DBR.No.Ret.BC.45/12.01.001/2016-17 dated December 7, 2016 is as under:-

In exercise of the powers conferred by sub-section (1A) of Section 42 of the Reserve Bank of India Act, 1934, and in supersession of its notification DBR.No.Ret.BC.40/12.01.001/2016-17 dated November 26, 2016, the Reserve Bank of India hereby withdraws with effect from fortnight beginning December 10, 2016 the requirement by all Scheduled Commercial Banks/ Regional Rural Banks / all Scheduled Primary (Urban) Co-operative Banks / all Scheduled State Co-operative Banks, to maintain an incremental cash reserve ratio (CRR) of 100 per cent on increase in net demand and time liabilities (NDTL) between September 16, 2016 and November 11, 2016.

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