RBI MPC Meet 2023 | Banks should park more money under cash reserve ratio to reduce liquidity: Shaktikanta Das

The Reserve Bank of India (RBI) on Thursday said that banks should park more money under cash reserve ratio to reduce the liquidity in the system. While announcing the bi-monthly monetary policy, RBI Governor Shaktikanta Das said that central bank has imposed Incremental CRR (ICRR) of 10 percent on increase in NDTL (Net Demand and Time Liabilities) between May 19 - July 28. The banks will have to implement this from August 12.

RBI Governor said that the measure is temporary and aimed at mopping up excess liquidity due to return of Rs 2,000 notes. The Governor said during the press meet that 87 percent of Rs 2,000 notes have come back to the deposits of the bank.

The next review for this measure will be held on September 8, the Governor said. The existing CRR remains unchanged at 4.5 percent. Additional Cash Reserve Ratio (CRR) will be marginally negative for NIMs for banks.

The Governor said that one must remain watchful of emerging trends and the risks to price stability, adding that supply side intervention is critical to control inflation.

"The only positive point is that it is going to be reviewed soon on September 8," SBI MD CS Setty said. "There will be some impact, we will have to assess what is the NDTL increase during the period which is mentioned. And then we will have to assess what is the impact. There would be slight impact. But since September 8 is also mentioned there, I think the pain is going to be lesser, I suppose. Hopefully the September 8 review will probably discontinue the incremental CRR," he added.

Madhavi Arora of Emkay said that all banks having to maintain the incremental CRR could be construed as unfair to some banks who did not benefit much from the withdrawal of Rs 2,000 notes. She alluded to the fact that some PSU Banks benefitted more from the liquidity glut.

"Notably, ICICI, HDFCB, Axis amongst banks have maintained strong contingent buffer amongst banks (0.7-1.2%) and thus should not have any impact," she added.

"The CRR hike would temporarily drain out liquidity close to Rs 70,000 crore. The systemic liquidity would still be in surplus. Consequently the impact would be largely neutral for banks. This in fact would be positive for NBFCs as the short/term interest rate would be lower than what was being anticipated earlier," Sujan Hajra, Chief Economist at Anand Rathi said.

Post this announcement, the Nifty Bank cooled off over 500 points from the day's high, even briefly slipping below the 44,500 mark, which has been a key support level. The index has now recovered 200 points from the day's low as well, currently trading 0.5 percent lower at 44,659.

The top losers on the Nifty Bank index are ICICI Bank and HDFC Bank, which are contributing 92.4 points and 79.1 points to the downside respectively.