What changed
The cash reserve ratio for scheduled commercial banks was increased by 50 basis points from the previous level to 7.50%. This change takes effect from the fortnight beginning November 10, 2007, superseding the earlier notification of July 31, 2007.
What it means for you
Banks will need to set aside a larger portion of their deposits as reserves with RBI, reducing funds available for lending and investments. This tightening is aimed at absorbing excess liquidity and managing inflationary pressures, potentially leading to higher lending rates and slower credit growth.
What you must do
- Recalibrate liquidity management to meet the higher CRR of 7.50% from November 10, 2007.
- Review loan and investment portfolios to adjust for reduced deployable funds.
- Communicate the impact on net interest margins and liquidity to treasury and ALCO teams.
- Update internal systems and reporting for the new CRR requirement.
Who it affects
All scheduled commercial banks (excluding RRBs), Treasury and asset-liability management teams, Credit and lending departments
When does the new CRR of 7.50% become effective?
The revised CRR applies from the fortnight starting November 10, 2007.
Which banks are covered by this circular?
All scheduled commercial banks, excluding Regional Rural Banks, must comply.
What is the basis for calculating the CRR?
The CRR is calculated as a percentage of a bank's demand and time liabilities.