Facts for Prelims (FFP)
Context: The Reserve Bank of India (RBI) has announced the discontinuation of the incremental cash reserve ratio (I-CRR) in a phased manner.
- The I-CRR was aimed at absorbing surplus liquidity in the banking system, primarily due to various factors like the return of Rs 2,000 banknotes, government spending, and capital inflows.
Banks are typically required to maintain 4.5 per cent of their Net Demand and Time Liabilities as CRR with the RBI.
However, in periods of excess liquidity, the RBI can impose incremental CRR, which means that banks will have to park even more liquid cash with the RBI. This measure helps the central bank manage liquidity and acts as a buffer during times of stress in the banking system.