What changed
The Reserve Bank of India (Amendment) Act, 2006 came into force on April 1, 2007, removing the statutory minimum CRR requirement of 3% of total demand and time liabilities. Consequently, RBI modified its earlier circular to exempt RRBs from maintaining average CRR on liabilities to the banking system and CBLO transactions with CCIL, effective from April 1, 2007.
What it means for you
RRBs now have greater flexibility in managing their liquidity as they are not required to set aside reserves for inter-bank liabilities and CBLO transactions. This reduces the cost of funds for RRBs and may encourage more active participation in the CBLO market. Banks should update their CRR computation systems to exclude these exempted categories from the base for reserve maintenance.
What you must do
- Update CRR calculation systems to exclude liabilities to the banking system and CBLO transactions with CCIL from the base for average CRR maintenance.
- Ensure compliance with the revised circular from April 1, 2007, and acknowledge receipt to the respective RBI Regional Office.
- Review internal liquidity management policies to leverage the reduced reserve requirement for better fund deployment.
Who it affects
All Regional Rural Banks (RRBs) in India, Treasury and compliance departments of RRBs, Clearing Corporation of India (CCIL) for CBLO transactions
Which liabilities are now exempt from CRR maintenance for RRBs?
Liabilities to the banking system in India as computed under Section 42(1) of the RBI Act, and transactions in CBLO with CCIL are exempt from average CRR maintenance from April 1, 2007.
Does this circular remove all CRR requirements for RRBs?
No, it only exempts specific categories—liabilities to the banking system and CBLO transactions. Other demand and time liabilities remain subject to CRR as per prevailing rates.
What triggered this change in CRR exemption?
The notification of Section 3 of the RBI (Amendment) Act, 2006, effective April 1, 2007, removed the statutory minimum CRR of 3%, allowing RBI to modify exemptions for RRBs.