A 10 per cent incremental cash reserve ratio (I-CRR) is expected to suck out excess liquidity worth Rs 1 trillion from the Indian economy, the governor of Reserve Bank of India (RBI) Shaktikanta Das said on Thursday.
Das was addressing a press conference in Mumbai after the monetary policy announcement.
During the MPC policy announcement, Das announced that from the fortnight beginning August 12, scheduled banks would have to maintain an I-CRR of 10 per cent on the increase in their net demand and time liabilities (NDTL) between May 19 and July 28.
"Efficient liquidity management requires continuous assessment of the level of surplus liquidity so that additional measures are taken as and when necessary to impound the element of excess liquidity," he said.
Das added that this measure is intended to absorb the surplus liquidity generated by various factors, including the return of Rs 2,000 notes to the banking system.
"This is purely a temporary measure for managing the liquidity overhang. Even after this temporary impounding, there will be adequate liquidity in the system to meet the credit needs of the economy," he said.
Das also said that till now, 87 per cent of Rs 2,000 notes have been returned to the banks.
"The I-CRR will be reviewed on September 8 or earlier with a view to returning the impounded funds to the banking system ahead of the festival season," Das said.
The cash reserve ratio (CRR) has been kept unchanged at 4.5 per cent. I-CRR needs to be maintained over and above this ratio.
In the MPC announcement, Das said that the committee has unanimously decided to keep the repo rate unchanged at 6.5 per cent for the third time in a row. It, however, raised the retail inflation forecast for the current year to 5.4 per cent from its earlier projection of 5.1 per cent.
India's real GDP growth rate in the current year has been pegged at 6.5 per cent.