What changed
The statutory minimum CRR of 3% of net demand and time liabilities for StCBs was eliminated from April 1, 2007, following the RBI (Amendment) Act, 2006. RBI can now prescribe CRR without any floor or ceiling. CRR was raised to 6.25% from April 14, 2007, and further to 6.50% from April 28, 2007. Interest on CRR balances ceased from the fortnight beginning March 31, 2007.
What it means for you
StCBs lose the safety of a fixed CRR floor, giving RBI full flexibility to tighten or loosen liquidity. The immediate CRR hike to 6.50% will reduce lendable resources and compress margins. Stopping interest on CRR balances increases the effective cost of reserves, pressuring profitability.
What you must do
- Recalibrate liquidity buffers to meet CRR at 6.50% from April 28, 2007, without interest on balances.
- Review asset-liability management to absorb higher CRR cost and reduced lendable funds.
- Update internal CRR compliance systems to reflect removal of statutory floor and new flexible regime.
- Monitor RBI circulars for future CRR changes as no floor/ceiling now applies.
Who it affects
Scheduled State Co-operative Banks, Treasury and ALM teams at StCBs, RBI's monetary policy operations
Why was the 3% CRR floor removed for StCBs?
The RBI (Amendment) Act, 2006 came into force from April 1, 2007, removing the statutory minimum CRR requirement. This gives RBI full discretion to set CRR without any floor or ceiling to manage monetary stability.
What are the new CRR rates and effective dates?
CRR for StCBs was set at 6.25% from the fortnight beginning April 14, 2007, and increased to 6.50% from the fortnight beginning April 28, 2007.
Will StCBs still earn interest on CRR balances?
No. With effect from the fortnight beginning March 31, 2007, RBI stopped paying any interest on CRR balances maintained by StCBs.