Incremental Cash Reserve Ratio (I-CRR) is an additional cash balance that the Reserve Bank of India (RBI) can ask banks to maintain over and above the Cash Reserve Ratio (CRR) for a specific period. The CRR is the minimum amount of the total deposits that banks have to keep with the central bank, which serves as a mechanism for the RBI to regulate liquidity in the economy and act as a buffer during periods of financial strain. The I-CRR was introduced on August 10, 2023, by the RBI to absorb the surplus liquidity generated by various factors, including the return of Rs 2,000 notes to the banking system. Banks were mandated to keep a 10% incremental cash reserve ratio as part of RBIs strategy to absorb excess liquidity from the banking system following the withdrawal of the Rs 2,000 currency notes.

The RBI announced the discontinuation of the I-CRR on September 8, 2023, in a phased manner. The central bank will release the amount which banks have maintained under I-CRR in stages. On September 9, it released 25% of I-CRR, another 25% on September 23, 2023, and the remaining 50% on October 7, 2023. The RBI plans to discontinue I-CRR in a phased manner to manage system liquidity without disrupting the money markets. RBIs primary objective is to curtail inflation through this tool. As liquidity is withdrawn, banks will have limited funds for lending, thereby decreasing demand for goods and services, and consequently reducing prices. Short-term interest rates might rise due to tightening of fund supply in the economy, acting as an additional measure to counter inflation.