What changed
RBI increased the Cash Reserve Ratio for Regional Rural Banks by 50 basis points, from 6.50% to 7.00% of net demand and time liabilities. The new rate applies from the fortnight beginning August 4, 2007, superseding the earlier April 24, 2007 notification.
What it means for you
RRBs will now need to park a larger share of their deposits with RBI, reducing lendable resources and squeezing liquidity. This move signals RBI's intent to absorb excess liquidity from the banking system to manage inflation. For RRBs, it means tighter margins and a need to recalibrate asset-liability management.
What you must do
- Recalculate CRR maintenance for the fortnight starting August 4, 2007 using 7.00% of demand and time liabilities.
- Ensure adequate balances are maintained in the current account with RBI to meet the higher CRR requirement.
- Review liquidity position and adjust lending or investment plans to accommodate the increased reserve requirement.
- Acknowledge receipt of this circular to your respective Regional Office.
Who it affects
All Regional Rural Banks (RRBs), Treasury and ALM teams at RRBs, RBI's Rural Planning and Credit Department
What is the new CRR rate for RRBs and when does it take effect?
The CRR for RRBs is increased to 7.00% of net demand and time liabilities, effective from the fortnight beginning August 4, 2007.
Does this circular change any exemptions previously allowed?
No, the exemptions mentioned in the earlier notification dated April 24, 2007 remain unchanged.
What should RRBs do to comply with this change?
RRBs must maintain CRR at 7.00% from the first fortnight of August 2007, review their liquidity, and acknowledge receipt to their Regional Office.