What changed
The statutory minimum CRR of 3% on total demand and time liabilities was removed effective April 1, 2007, due to the RBI (Amendment) Act, 2006. Consequently, the earlier circular on CRR exemptions was modified, and UCBs are now exempt from maintaining average CRR on liabilities to the banking system and CBLO transactions with CCIL from that date.
What it means for you
UCBs can now free up funds that were previously locked in CRR on these specific liabilities, improving their liquidity position. This change reduces the cost of funds for banks on interbank and CBLO transactions, potentially encouraging more active use of these instruments for liquidity management.
What you must do
- Update your CRR computation process to exclude liabilities to the banking system and CBLO transactions with CCIL from average CRR maintenance from April 1, 2007.
- Ensure your treasury and compliance teams are aware of this exemption to avoid over-maintaining CRR on these items.
- Review your liquidity management strategy to leverage the freed-up funds from this exemption.
Who it affects
All Scheduled Primary (Urban) Co-operative Banks, Treasury departments of UCBs, Compliance teams of UCBs
Which liabilities are exempt from CRR maintenance under this circular?
Liabilities to the banking system in India as per Section 42(1) of the RBI Act, 1934, and transactions in CBLO with CCIL are exempt from average CRR maintenance from April 1, 2007.
Does this circular remove the statutory minimum CRR of 3% for UCBs?
Yes, the statutory minimum CRR of 3% of total demand and time liabilities was removed effective April 1, 2007, following the notification of Section 3 of the RBI (Amendment) Act, 2006.
What should UCBs do to comply with this circular?
UCBs should adjust their CRR calculations to exclude the specified liabilities and ensure that no CRR is maintained on them from April 1, 2007 onward.