What changed
RBI increased the Cash Reserve Ratio (CRR) by 50 basis points in two equal tranches. The CRR rose to 5.75% effective February 17, 2007, and further to 6.00% effective March 3, 2007. This supersedes the previous CRR level set in the December 11, 2006 circular.
What it means for you
Banks will need to hold an additional 0.5% of their Net Demand and Time Liabilities (NDTL) as reserves with RBI, reducing lendable resources. This move signals RBI's intent to absorb excess liquidity and curb inflationary pressures. Lenders face higher funding costs and may tighten credit or adjust deposit rates.
What you must do
- Recalculate CRR compliance for fortnights starting Feb 17 and Mar 3, 2007 using the new rates.
- Review liquidity buffers and adjust short-term funding strategies to manage the incremental reserve requirement.
- Communicate the CRR hike impact on net interest margins to treasury and ALCO teams.
- Monitor RBI's future policy stance for further tightening signals.
Who it affects
All Scheduled Commercial Banks (excluding Regional Rural Banks), Treasury and ALCO departments, Credit and deposit pricing teams
What is the new CRR rate and effective dates?
CRR is 5.75% from Feb 17, 2007 and 6.00% from Mar 3, 2007, applied on NDTL.
Which banks are covered by this circular?
All Scheduled Commercial Banks except Regional Rural Banks (RRBs).
What is the basis for CRR calculation?
CRR is calculated as a percentage of Net Demand and Time Liabilities (NDTL).