What changed
The RBI notified that the statutory minimum CRR requirement of 3% of total demand and time liabilities ceased to exist from April 1, 2007, following the enforcement of Section 3 of the RBI (Amendment) Act, 2006. Consequently, the earlier circular of March 1, 2007 was modified to exempt four specific liability categories from average CRR maintenance effective April 1, 2007.
What it means for you
Banks can now free up funds that were earlier locked as CRR on interbank liabilities, ACU balances, CBLO transactions, and OBU deposits. This reduces the cost of funds for these categories and improves liquidity management flexibility. The removal of the 3% statutory floor also gives RBI more leeway to set CRR based on monetary policy needs.
What you must do
- Update your CRR computation system to exclude the four exempted liability categories from April 1, 2007.
- Ensure that CRR reporting to RBI reflects the revised basis as per the notification.
- Review your liquidity planning to account for the freed-up reserves from these exemptions.
- Communicate the change to your treasury and compliance teams for accurate implementation.
Who it affects
All scheduled commercial banks (excluding RRBs), Treasury departments managing CRR compliance, Offshore Banking Units (OBUs) of Indian banks
Which liabilities are now exempt from CRR maintenance?
Four categories: (i) liabilities to the banking system in India, (ii) credit balances in ACU (US$) accounts, (iii) transactions in CBLO with CCIL, and (iv) demand and time liabilities of Offshore Banking Units.
Does this mean the CRR requirement is completely removed?
No. Only the statutory minimum of 3% is gone, and the four specific categories are exempt. Banks still need to maintain CRR on other demand and time liabilities as per RBI's prevailing CRR rate.
From when is this exemption effective?
The exemption is effective from April 1, 2007, as per the notification dated April 20, 2007.