What changed
CRR for Scheduled Primary (Urban) Co-operative Banks increased by 0.50 percentage points in two equal tranches: from 6.00% to 6.25% effective April 14, 2007, and further to 6.50% effective April 28, 2007. Interest paid on eligible CRR balances reduced from 1.00% to 0.50% per annum from the fortnight beginning April 14, 2007.
What it means for you
Urban co-operative banks will need to set aside more funds as reserves, reducing lendable resources and potentially compressing net interest margins. The lower interest on CRR balances further reduces income from idle reserves. Banks must recalibrate liquidity management and may face pressure on profitability in the short term.
What you must do
- Adjust CRR maintenance processes to meet the 6.25% requirement from April 14 and 6.50% from April 28, 2007.
- Recalculate eligible cash balances for interest at the reduced rate of 0.50% per annum from April 14, 2007.
- Review liquidity projections and NDTL calculations to ensure compliance with the phased CRR hike.
- Communicate the changes to treasury and operations teams for smooth implementation.
Who it affects
Scheduled Primary (Urban) Co-operative Banks, Treasury departments of urban co-operative banks, Compliance and operations teams handling CRR
What is the new CRR rate for urban co-operative banks from April 28, 2007?
The CRR will be 6.50% of Net Demand and Time Liabilities (NDTL), up from 6.00% earlier, implemented in two stages.
Will banks still get interest on CRR balances?
Yes, but the interest rate is reduced from 1.00% to 0.50% per annum on eligible cash balances maintained with RBI, effective from the fortnight beginning April 14, 2007.
Is there a minimum CRR requirement?
Yes, the effective CRR on total Demand and Time Liabilities shall not be less than 3.00% as per the RBI Act, 1934.