What changed
CRR increased by 0.50 percentage points in two equal steps: to 6.25% from April 14, 2007, and to 6.50% from April 28, 2007. Interest on eligible CRR balances was halved from 1.00% to 0.50% per annum effective April 14, 2007.
What it means for you
Banks will need to set aside more funds with RBI, reducing lendable resources and squeezing net interest margins. The lower interest on CRR balances further dents profitability. Liquidity in the banking system will tighten, potentially pushing up short-term rates.
What you must do
- Recalibrate liquidity buffers to meet the higher CRR of 6.50% by April 28, 2007.
- Review asset-liability management to absorb the impact on net interest margins.
- Communicate the CRR hike impact to treasury and credit teams for rate repricing.
- Monitor fortnightly CRR compliance to avoid penalties.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Treasury and ALM desks, Credit and lending teams
When does the first CRR hike take effect?
The first increase to 6.25% applies from the fortnight beginning April 14, 2007.
What is the new interest rate on CRR balances?
Interest on eligible cash balances maintained with RBI under CRR is reduced to 0.50% per annum from April 14, 2007.
Does this apply to Regional Rural Banks?
No, the circular is addressed to all Scheduled Commercial Banks excluding Regional Rural Banks.