The Reserve Bank of India (RBI) has decided to gradually restore the cash reserve ratio (CRR) in two phases in a non-disruptive manner. This movie is based on a review of monetary and liquidity conditions. CRR, which is the slice of deposits that banks maintain with the RBI, will increase from 3% to 3.5% from March 27, 2021, and to 4.0% from May 22, 2021.

According to the RBI, the CRR normalization opens up space for a variety of market operations of the RBI to inject additional liquidity. Even as it announced the restoration of CRR to 4%, the central bank extended the relaxation in the marginal standing facility (MSF) for an additional period of six months; up to September 30, 2021; for providing comfort to banks on their liquidity requirements. To handle the disruption caused by Covid-19, the CRR of all banks was reduced by 100 basis points to 3.0% for one year ending on March 26, 2021. Currently, under MSF, Banks can avail of funds by dipping into the Statutory Liquidity Ratio (SLR) up to an additional 1% of their deposits – cumulatively up to 3% of their deposits. This dispensation provides increased access to funds to the extent of ₹1.53 lakh crore.

The RBI decided to extend the dispensation of parking Government Securities (G-Secs) and State Development Loans (SDLs), acquired between April 1, 2021, and March 31, 2022, in the enhanced HTM (held to maturity) investment bucket up to March 31, 2023. The benefit of this enhanced HTM limit, whereby banks can park G-Secs and SDLs equal to 22% of their deposits, is that they need not provide for investment depreciation. According to the RBI, the extension of the aforementioned dispensation will provide certainty to the market participants in the context of the borrowing program of the Centre and States for 2021-22. The HTM limits would be restored to 19.5% in a phased manner starting from the quarter ending June 30, 2023.