The Reserve Bank of India will wind down, in phases, the incremental cash reserve ratio (I-CRR) requirement imposed on banks by Oct. 7, it said on Friday.
The RBI said it will release 25% of the I-CRR funds on Sept. 9, another 25% on Sept. 23 and the rest on Oct. 7.
“Based on an assessment of current and evolving liquidity conditions, it has been decided that the amounts impounded under the I-CRR would be released in stages so that system liquidity is not subjected to sudden shocks and money markets function in an orderly manner,” the RBI said in a statement.
In August, the RBI had asked banks to hold an I-CRR of 10% on the increase in deposits between May 19 and July 28, withdrawing over 1 trillion rupees ($12.02 billion) of banking system liquidity.
On Wednesday, Reuters reported, citing sources, that market participants expected the RBI to continue with I-CRR, with some tweaks to the proportion.
Market participants had expected the ratio to be lowered to 5% to 8% ahead of twin tax outflows that are due over the next two weeks.
(Reporting by Dharamraj Dhutia; Editing by Savio D’Souza)