With the withdrawal of the legal tender status of ₹ 500 and ₹ 1,000 denomination bank notes (Specified Bank Notes – SBNs) from November 9, 2016, there has been a surge in deposits relative to the expansion in bank credit, leading to large excess liquidity in the system.
RBI has stated that the magnitude of surplus liquidity available with the banking system is expected to increase further in the fortnights ahead. RBI has decided to absorb a part of this surplus liquidity by applying an incremental cash reserve ratio (CRR) as a temporary measure:
The CRR remains unchanged at 4 per cent of outstanding net demand and time liabilities (NDTL);
The Reserve Bank has 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.
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