What changed
RBI set CRR for RRBs at 5.75% from Feb 17, 2007, and 6.00% from Mar 3, 2007, on total demand and time liabilities. Interest on eligible CRR balances was reduced to 1.00% per annum from Feb 17, 2007, down from earlier rates of 3.50% and 2.00%. Penal interest for breaching the 3% statutory minimum during Jun 22, 2006 to Mar 2, 2007 was exempted for breaches due to CRR exemptions.
What it means for you
RRBs face higher CRR requirements, tightening liquidity and reducing funds available for lending. Lower interest on CRR balances reduces income from reserves, pressuring margins. The penalty exemption offers relief for past inadvertent breaches, but banks must ensure compliance going forward.
What you must do
- Adjust CRR maintenance to 5.75% for fortnights from Feb 17, 2007, and 6.00% from Mar 3, 2007.
- Compute CRR on total demand and time liabilities, accounting for exemptions per circular RPCD.RRB.CO.BC.No.52/03.05.28(B)/2006-07.
- Claim penalty exemption for breaches of 3% statutory minimum during Jun 22, 2006 to Mar 2, 2007, if due to CRR exemptions.
- Update internal systems to reflect reduced interest rates on eligible CRR balances.
Who it affects
All Regional Rural Banks (RRBs), Treasury and compliance departments of RRBs
What is the new CRR rate for RRBs from March 2007?
RRBs must maintain CRR at 5.75% from the fortnight beginning Feb 17, 2007, and 6.00% from the fortnight beginning Mar 3, 2007, on total demand and time liabilities.
Will RRBs receive interest on CRR balances?
Yes, RBI pays interest on eligible CRR balances at reduced rates: 3.50% from Jun 24 to Dec 8, 2006; 2.00% from Dec 9, 2006 to Feb 16, 2007; and 1.00% from Feb 17, 2007 onward.
Are there any penalty exemptions for CRR breaches?
Yes, RBI exempts penal interest for RRBs that breached the statutory minimum CRR of 3% during Jun 22, 2006 to Mar 2, 2007, if the breach was due to CRR exemptions in computing demand and time liabilities.