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CRR Floor Removed for Urban Co-op Banks; Rate Unchanged at 5%

Current · Source: Reserve Bank of India · RBI/2005-2006/426 · issued 22 Jun 2006 · ~2 min read

Quick answerRBI has removed the statutory minimum CRR of 3% for scheduled urban co-operative banks, effective June 22, 2006. The CRR rate remains at 5% of demand and time liabilities, and no interest will be paid on CRR balances from June 24, 2006.

The rule, in the simplest words

The old rule that banks must keep at least 3% of their deposits as cash with RBI is gone from June 22, 2006.
Urban co-operative banks still have to keep 5% of their deposits as cash with RBI (this is called CRR).
From June 24, 2006, RBI will not pay any interest on the cash banks keep with it for CRR.
RBI can now change the CRR percentage anytime, without needing permission from the government.

How it plays out — a real example

Priya, a treasury officer at an urban co-operative bank in Surat, updates her bank's system on June 23, 2006, to stop calculating interest on the CRR balance from the next fortnight. She also warns her team that the CRR rate might change suddenly now that the old 3% floor is gone, so they must keep extra cash ready for any new RBI rule.

What changed

The Reserve Bank of India (Amendment) Bill, 2006 removed the statutory floor of 3% CRR for scheduled banks, including urban co-operative banks. RBI can now set CRR without any floor or ceiling. The CRR rate for these banks stays at 5% for now, and interest on CRR balances is discontinued from the fortnight starting June 24, 2006.

What it means for you

Urban co-operative banks lose the interest income they previously earned on CRR balances, which will compress net interest margins. The removal of the CRR floor gives RBI full flexibility to adjust reserve requirements in future, potentially increasing or decreasing CRR without legislative constraints. Banks must adjust liquidity management as CRR becomes a more dynamic policy tool.

What you must do

Update internal systems to stop accruing interest on CRR balances from June 24, 2006 fortnight.
Review liquidity projections assuming CRR can be changed at any time without a statutory floor.
Communicate the discontinuation of CRR interest to treasury and finance teams for accurate P&L reporting.
Monitor RBI circulars for any future changes to the 5% CRR rate.

Who it affects

All Scheduled Primary (Urban) Co-operative Banks, Treasury departments of urban co-operative banks, Finance and compliance teams managing CRR calculations

❓ Common questions

Regulatory timeline

Stated effective date effective June 22, 2006
Decoded by BankPulse 2026-06-19 18:24 IST

Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).

What is the new CRR rate for urban co-operative banks after this circular?

The CRR rate remains unchanged at 5% of total demand and time liabilities. Only the statutory minimum floor of 3% has been removed, giving RBI flexibility to change the rate in future.

Will we still get interest on CRR balances maintained with RBI?

No. With the omission of Section 42(1B), RBI will not pay any interest on CRR balances from the fortnight beginning June 24, 2006.

Does this circular affect non-scheduled urban co-operative banks?

No. This circular applies only to Scheduled Primary (Urban) Co-operative Banks. Non-scheduled banks are not covered under Section 42 of the RBI Act.

📜 Read the original circular — full text as issued by RBI

RBI/2005-2006/426

 UBD (PCB) Cir. No. 59/16.26.000/2005-2006 

   June 22, 2006 

 The Chief Executive Officers of

 All Scheduled Primary (Urban) Co-operative Banks 

 Dear Sir/Madam, 

 Section 42(1) of Reserve Bank of India Act, 1934 
 – Maintenance of CRR 

 Please refer to our Circular UBD PCB Cir 19/16.11.00/2004-05 
 dated September 13, 2004 on the captioned subject. 

 2. The Reserve Bank of India (Amendment) Bill, 
 2006 has been enacted and has come into force with effect from June 22, 2006, 
 with its notification in the Gazette. Consequent upon the amendment to sub-section 
 (1) of Section 42 of the Reserve Bank of India Act, 1934, the Reserve Bank having 
 regard to the needs of securing the monetary stability in the country, can prescribe 
 the Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling 
 rate. The statutory minimum CRR requirement of 3 per cent of total demand and 
 time liabilities no longer exists with effect from June 22, 2006.  In exercise 
 of the powers conferred on Reserve Bank of India, it has been decided to continue 
 the status quo on the rate of CRR to be maintained by Scheduled Primary 
 (Urban) Co-operative Banks and the extant exemptions, which will be operative 
 till further changes are notified. Accordingly, Scheduled Primary (Urban) Co-operative 
 Banks shall continue to maintain CRR of 5 per cent of their total demand and 
 time liabilities, subject to the exemptions as indicated in our circular UBD.PCB.Cir.No.60/16.26.000/2005-06 
 dated June 22, 2006. 

 3. Further, as part of the amendments carried 
 out to Reserve Bank of India Act, 1934, sub-section (1B) of Section 42 of the 
 Act has been omitted. Accordingly, the Reserve Bank will not be paying any interest 
 on the CRR balances maintained by Scheduled Primary (Urban) Co-operative Banks 
 with effect from the fortnight beginning June 24, 2006. 

 4.  A copy of the relative notification 
 UBD (PCB) No.13275/16.26.000/2005-2006 dated June 22, 2006 
 is enclosed.  

 Yours faithfully, 

 (N.S.Vishwanathan) 

 Chief General Manager in-Charge 

 UBD (PCB) No.13275/16.26.000//2005-2006 

 June 22, 2006 

 NOTIFICATION 

 Consequent upon the amendment carried out to 
 sub-section (1) of Section 42 of the Reserve Bank of India Act, 1934 (2 of 1934), 
 the statutory minimum Cash Reserve Ratio (CRR) requirement of 3 per cent of 
 the total demand and time liabilities no longer exists in respect of Scheduled 
 Primary (Urban) Co-operative Banks with effect from June 22, 2006. Further, 
 in exercise of the powers conferred under the amended sub-section (1) of Section 
 42 of the Reserve Bank of India Act, 1934 and having regard to the needs of 
 securing monetary stability in the country, the Reserve Bank of India hereby 
 notifies that every Scheduled Primary (Urban) Co-operative Bank should continue 
 to maintain a Cash Reserve Ratio of 5 per cent of its total demand and time 
 liabilities subject to the exemptions as envisaged in notification No. UBD.PCB. 
 13276/16.26.000/2005-2006 dated June 22, 2006 This is in partial modification 
 of the notification UBD No: BP /1/16.11.00/2004-05 dated September 13, 2004. 

 (V.S.Das) 

 Executive Director

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2005-2006/426 · issued 22 Jun 2006. The plain-English explanation above is BankPulse’s own independent summary.

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Who does what — compliance checklist

💻 IT / Systems

Update internal systems to stop accruing interest on CRR balances from June 24, 2006 fortnight.

📜 Compliance

Review liquidity projections assuming CRR can be changed at any time without a statutory floor.
Communicate the discontinuation of CRR interest to treasury and finance teams for accurate P&L reporting.
Monitor RBI circulars for any future changes to the 5% CRR rate.

Grouped from the action items above — a single circular may involve more than one team.

Worked example & action-note template

Example: if you are an IT/Systems lead at a bank this circular applies to (All Scheduled Primary (Urban) Co-operative Banks, Treasury departments of urban co-operative banks, Finance and compliance teams managing CRR calculations), your first concrete step on “CRR Floor Removed for Urban Co-op Banks; Rate Unchanged at 5%” is: “Update internal systems to stop accruing interest on CRR balances from June 24, 2006 fortnight.” (RBI issued this 22 Jun 2006).

Circular: RBI/2005-2006/426 -- CRR Floor Removed for Urban Co-op Banks; Rate Unchanged at 5%
Issued: 22 Jun 2006
Action required: Update internal systems to stop accruing interest on CRR balances from June 24, 2006 fortnight.
Action required: Review liquidity projections assuming CRR can be changed at any time without a statutory floor.
Action required: Communicate the discontinuation of CRR interest to treasury and finance teams for accurate P&L reporting.
Action required: Monitor RBI circulars for any future changes to the 5% CRR rate.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________

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BankPulse Compliance Evidence Pack — generated 05 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly).
Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=2924&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.