What changed
The statutory minimum CRR of 3% of net demand and time liabilities for RRBs was eliminated effective April 1, 2007, following the RBI (Amendment) Act, 2006. RBI now has full discretion to set CRR for RRBs without any floor or ceiling. Additionally, interest payment on CRR balances maintained by RRBs was discontinued from the fortnight beginning March 31, 2007.
What it means for you
RRBs lose the guaranteed 3% floor, giving RBI flexibility to raise or lower CRR as needed for monetary stability. The removal of interest on CRR balances increases the cost of holding reserves for RRBs, directly impacting their net interest margins. Banks must adjust liquidity management as CRR can now be changed without statutory limits.
What you must do
- Update internal CRR compliance systems to reflect removal of the 3% statutory floor and new discretionary regime.
- Prepare for potential CRR rate changes without prior floor protection; monitor RBI announcements closely.
- Adjust liquidity planning to account for zero interest on CRR balances from March 31, 2007 onward.
- Ensure accurate calculation of net demand and time liabilities for CRR maintenance at 6.25% and 6.50% as per schedule.
Who it affects
Regional Rural Banks (RRBs), Treasury and ALM teams at RRBs, RBI's monetary policy implementation for RRBs
Why did RBI remove the 3% CRR floor for RRBs?
The floor was removed as part of the RBI (Amendment) Act, 2006, which came into force on April 1, 2007, to give RBI greater flexibility in setting CRR for monetary stability without statutory constraints.
What are the current CRR rates for RRBs after this change?
RRBs must maintain CRR at 6.25% of net demand and time liabilities from the fortnight beginning April 14, 2007, and 6.50% from April 28, 2007, as per the circular.
Will RRBs receive interest on CRR balances now?
No, interest payment on CRR balances maintained by RRBs was discontinued with effect from the fortnight beginning March 31, 2007, following the amendment.