The Reserve Bank of India’s (RBI) decision to impose a 10% Incremental Cash Reserve Ratio (ICRR) on banks is aimed at curbing excessive growth in unsecured lending, according to experts. The move is meant to counter the risk of payment defaults arising from banks offering more unsecured loans like personal loans and credit card loans due to increased liquidity. The withdrawal of ₹2,000 notes led to excess liquidity in the banking system. The ICRR requires banks to maintain 10% of the increase in their deposits between May 19 and July 28 as a buffer against excessive liquidity.
Experts recommend a 10% incremental CRR to discourage banks from making excessive unsecured lending
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