What changed
The Cash Reserve Ratio (CRR) for scheduled commercial banks was increased by 25 basis points from 8.75% to 9.00% of net demand and time liabilities (NDTL). This change takes effect from the fortnight beginning August 30, 2008, as announced in the First Quarter Review of the Annual Monetary Policy for 2008-09.
What it means for you
Banks will need to park an additional 0.25% of their NDTL with RBI, tightening liquidity and reducing funds available for lending and investment. This move aims to curb inflationary pressures by absorbing excess money supply. Lenders may face pressure on net interest margins and may need to adjust deposit or lending rates.
What you must do
- Recalculate CRR requirements based on 9% of NDTL for the fortnight starting Aug 30, 2008.
- Ensure adequate liquidity buffers to meet the higher reserve requirement without breaching statutory minima.
- Review loan and deposit pricing strategies to manage margin compression from the CRR hike.
- Update internal systems and reporting processes to reflect the new CRR rate from the effective date.
Who it affects
All scheduled commercial banks (excluding Regional Rural Banks), Treasury and asset-liability management teams, Credit and lending departments
When does the new CRR of 9% become effective?
The revised CRR of 9% applies from the fortnight beginning August 30, 2008.
Which banks are covered by this CRR hike?
All scheduled commercial banks, excluding Regional Rural Banks, are required to maintain the increased CRR.
Why did RBI increase the CRR?
The hike was based on a review of current liquidity conditions, as part of the First Quarter Review of the Annual Monetary Policy for 2008-09, to absorb excess liquidity and manage inflation.