Incremental Cash Reserve Ratio
Also called: I-CRR · Topic: Banking, Credit Creation and Monetary Policy · NCERT: Beyond NCERT
Meaning
The Incremental Cash Reserve Ratio (I-CRR) is a temporary extra cash reserve that banks must keep with the RBI. It applies only to the increase in deposits over a chosen period, not to all deposits. It is measured on Net Demand and Time Liabilities (NDTL), which means mainly a bank's deposits. The RBI uses it to absorb a sudden flood of surplus money quickly, and it removes it once the shock passes.
Example
After demonetisation, old notes came back as bank deposits in huge amounts. On 26 Nov 2016, the RBI imposed a 100% I-CRR on NDTL added between 16 Sept and 11 Nov 2016, and withdrew it on 10 Dec 2016. After the ₹2,000 note was withdrawn in May 2023, the RBI imposed a 10% I-CRR on NDTL added between 19 May and 28 July 2023, and unwound it by Oct 2023.
Don't confuse with
- Cash Reserve Ratio (CRR): the regular, permanent reserve on a bank's total NDTL, 3% after the 2025 cuts. I-CRR is extra, temporary and applies only to the increase in deposits.
Related concepts
- Long-Term Repo Operations
- Forex swap auction
- Sterilisation
- Market Stabilisation Scheme
- Demonetisation