What changed
CRR for RRBs increased by 0.50 percentage points to 6.50% of NDTL, effective from fortnights beginning April 14 and April 28, 2007. Interest on eligible cash balances with RBI reduced from 1.00% to 0.50% per annum from April 14, 2007.
What it means for you
RRBs will need to set aside more funds as reserves, reducing lendable resources and potentially squeezing margins. The lower interest on CRR balances further dents income from idle reserves, pressuring profitability.
What you must do
- Recalibrate liquidity management to meet the higher CRR of 6.50% by April 28, 2007.
- Update internal systems to reflect the reduced interest rate of 0.50% on eligible CRR balances.
- Advise treasury and ALCO teams on the phased CRR hike impact on cash flow and lending plans.
Who it affects
Regional Rural Banks (RRBs), Treasury and ALCO teams at RRBs, RBI's monetary policy operations
What is the new CRR for RRBs and when does it take effect?
CRR rises to 6.25% from April 14, 2007, and further to 6.50% from April 28, 2007, on NDTL.
How does the interest rate change on CRR balances affect RRBs?
Interest on eligible cash balances with RBI drops from 1.00% to 0.50% per annum from April 14, 2007, reducing income from reserves.