Incremental CRR (iCRR): How RBI May Drain Liquidity
Why in the news
The RBI might tighten liquidity with an incremental cash reserve ratio, ahead of any repo rate increase.
Key facts
- CRR: a percentage of Net Demand and Time Liabilities (NDTL) kept with the RBI at no interest.
- iCRR targets only the increase in deposits.
- Compared with a full hike, it spares each bank’s existing deposit base.
Worked example
- Deposits go from ₹1,000 crore to ₹1,200 crore: incremental deposits are ₹200 crore.
- At 10% iCRR the bank parks ₹20 crore extra with the RBI.
| Point | Normal CRR | Incremental CRR |
|---|---|---|
| Applies to | Overall NDTL | Additional deposits in a set period |
| Impact | Whole deposit base | Recent deposit growth only |
Why the RBI uses it
- Absorb excess liquidity from banks.
- Reduce money available for lending.
- Check inflationary pressure; a temporary measure.
Exam angle
- Expansion: iCRR is incremental cash reserve ratio.
- Base for CRR: NDTL.