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    EditorialAddress the surplus liquidity

    Address the surplus liquidity


    Address the surplus liquidity

    Keeping the in view the gigantic size of demonetized exercise in a country like has caused a huge and multiple challenges. The unprecedented liquidity in banks became one of the biggest issues to be confronted forthwith. Concerned over a massive surge in deposits due to surrender of the scrapped currency notes of Rs 500 and Rs 1,000, the Reserve Bank of India (RBI) on Saturday issued a directive to the banks to maintain an incremental “cash reserve ratio” (CRR) of 100 per cent, effective for a fortnight from November 26.

    The measure is intended to absorb a part of the surplus liquidity arising from the refund of the Specified Bank Notes – SBNs, (a term used for scrapped notes) to the banking system, while leaving adequate liquidity with banks to meet the credit needs of the productive sectors of the ,” a RBI press note said.

    Describing this as a temporary measure to drain out excess liquidity in the system, it said the decision shall be reviewed on December 9 or earlier. It said the RBI has separately revived the guarantee scheme to enable deposit of the SBNs with the RBI or at currency chests to get immediate value as it would facilitate banks' compliance with the incremental CRR. 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.

    In a notification signed by its executive director Sudarshan Sen, the RBI ordered all banks to ensure an additional average daily balance over and above the average daily balanced required to be maintained under Section 42(1) of the RBI Act and the amount of such additional balance shall not be less than 100% of the increase in NDTL between September 16 and November 11.

    While dealing with the magnitude of the demonetizing process, the Banks need to deploy the funds in such a manner that would not cause adverse effect on their profitability due to surplus liquidity.

    The Northlines is an independent source on the Web for news, facts and figures relating to Jammu, Kashmir and Ladakh and its neighbourhood.

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