What changed
RBI increased the effective CRR for Scheduled State Co-operative Banks to 5.75% from the fortnight beginning Feb 17, 2007 and further to 6.00% from the fortnight beginning Mar 3, 2007. The interest rate on eligible CRR balances was reduced to 1.00% per annum from Feb 17, 2007, down from 2.00% for the period Dec 9, 2006 to Feb 16, 2007. Additionally, penal interest was waived for banks that breached the statutory minimum CRR of 3% between June 22, 2006 and Mar 2, 2007 due to exemptions in CRR computation.
What it means for you
Scheduled State Co-operative Banks face higher reserve requirements, tightening liquidity. The sharp reduction in interest on CRR balances (from 3.50% to 1.00% over the period) reduces earnings on idle reserves. The penal interest waiver provides relief for past inadvertent breaches caused by CRR exemption adjustments.
What you must do
- Ensure CRR is maintained at 5.75% from Feb 17, 2007 and 6.00% from Mar 3, 2007 on total demand and time liabilities.
- Adjust liquidity planning to meet the higher CRR without incurring penalties.
- Account for reduced interest income on CRR balances at 1.00% per annum from Feb 17, 2007.
- Review past CRR compliance for the period June 22, 2006 to Mar 2, 2007 to claim penal interest waiver if applicable.
Who it affects
Scheduled State Co-operative Banks, Treasury and ALM teams of StCBs, Compliance departments of StCBs
What is the new CRR rate for Scheduled State Co-operative Banks?
The CRR is 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.
What interest will banks earn on CRR balances from Feb 17, 2007?
Interest on eligible CRR balances is paid at 1.00% per annum from the fortnight beginning Feb 17, 2007.
Is there any relief for past CRR breaches?
Yes, penal interest is waived for breaches of the 3% minimum CRR during June 22, 2006 to Mar 2, 2007 if caused by CRR exemptions in computation.