Demonetisation: RBI relaxes withdrawal norms, nudges retailers to deposit cash

  • Demonetisation: RBI relaxes withdrawal norms, nudges retailers to deposit cash

Demonetisation: RBI relaxes withdrawal norms, nudges retailers to deposit cash

The Reserve Bank of India (RBI) on Saturday ordered banks to deposit their extra cash with it, in a bid to absorb the excess liquidity generated by a government ban on larger banknotes. In comparison, the current CRR is just 4%.

Demonetization has brought in about Rs 8 lakh crore of deposits so far, according to estimates by the Indian Banks Association (IBA).

CRR is the portion of deposits that banks have to park as a reserve with the central bank. Banking shares skidded on Monday, with State Bank of India down 1.5 percent, given that the RBI's requirements would deprive banks of the interest earned on funds deposited with the RBI.

Simply put, CRR was the percentage of the total deposit that banks have to keep with RBI.

They said in effect this brings back the memories of "retrospective" measures which had made India infamous in terms of taxation about three years ago.

The banks also disbursed over 2.16 lakh crore over the counter and via ATMs from November 10-27.

Due to surplus liquidity in the wake of demonetisation, some banks have already reduced deposits rates in the range of 15-50 bps (0.15-0.50%). On the other hand, around Rs 34000 crore had been exchanged till date.

Das refrained from guessing on what RBI will do in its next monetary policy review due later next month. Perhaps it has become necessary in the context of excess liquidity in the system. The MPC had announced a surprise rate cut of 25 basis points in its last policy meeting in October.

RBI, however, said it was a "purely temporary measure".

"The surplus rupee liquidity and sharply falling rates were also creating distortions in the forward premia and indirectly impacting the spot dollar-rupee rates", the report said, adding that the measure could reverse some of these distortions.

"While RBI has a significant stock of government securities available, we felt that if the increase in deposits continues we may fall short, hence the decision". This is in addition to the CRR supposed to remain 4% of the NDTL (Net demand and time liabilities) as recorded between September 16 and November 9.