The Reserve Bank of India said on Friday that it will phase out the incremental cash reserve ratio (I-CRR) requirement imposed on banks by October 7.
The central bank stated that 25% of the I-CRR money will be released on September 9, another 25% on September 23, and the remaining 25% on October 7.
In a statement, the RBI said, “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”.
After this decision, banking sector liquidity fell into deficit for the first time this fiscal year, but it has since risen to nearly 750 billion rupees ($9.05 billion).
Indian banking stocks rose since the move was mostly beneficial to lenders.
The RBI instructed banks in August to hold an I-CRR of 10% on deposits increased between May 19 and July 28, removing nearly 1 trillion rupees of banking sector liquidity.
Advance tax payments are expected around September 15, with GST outflows scheduled for September 20. Traders anticipate total outflows of 2.2 to 2.5 trillion rupees.
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