What changed
The Cash Reserve Ratio (CRR) for Scheduled Commercial Banks (excluding RRBs) was increased by 75 basis points from 5.00% to 5.75% of net demand and time liabilities (NDTL). The hike is implemented in two stages: 5.50% effective from the fortnight beginning February 13, 2010, and 5.75% from the fortnight beginning February 27, 2010.
What it means for you
Banks will need to set aside a larger portion of their deposits as reserves with RBI, reducing lendable resources. This tightens liquidity and may pressure net interest margins, as the additional CRR balances earn no interest. Lenders must recalibrate their asset-liability management and liquidity planning to comply with the phased increase.
What you must do
- Adjust your bank's CRR maintenance system to reflect the new rates: 5.50% from Feb 13, 2010, and 5.75% from Feb 27, 2010.
- Review and update liquidity forecasts to account for the incremental CRR impoundment over the two fortnights.
- Communicate the revised CRR requirements to your treasury and operations teams to ensure compliance.
- Assess the impact on lending capacity and adjust credit growth plans accordingly.
Who it affects
All Scheduled Commercial Banks (excluding Regional Rural Banks), Treasury departments, Asset-liability management (ALM) teams, Credit and lending divisions
What is the new CRR rate and when does it take effect?
The CRR is increased from 5.00% to 5.75% of NDTL in two stages: 5.50% from the fortnight starting February 13, 2010, and 5.75% from the fortnight starting February 27, 2010.
Why did RBI hike the CRR?
Based on the macroeconomic assessment in the Third Quarter Review of Monetary Policy 2009-10, RBI decided to increase CRR to absorb excess liquidity from the banking system.
Are Regional Rural Banks affected by this change?
No, this circular applies to all Scheduled Commercial Banks excluding Regional Rural Banks.