What changed
The Cash Reserve Ratio for Scheduled Primary (Urban) Co-operative Banks was increased by 75 basis points from 5.00% to 5.75% of net demand and time liabilities. 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
Urban co-operative banks will need to park more funds with RBI as CRR, reducing lendable resources and impacting liquidity. This move signals RBI's intent to absorb excess liquidity from the banking system to manage inflationary pressures, as per the Third Quarter Review of Monetary Policy 2009-10. Banks must adjust their asset-liability management to meet the higher reserve requirement in two phases.
What you must do
- Recalibrate NDTL projections to ensure CRR compliance at 5.50% from Feb 13 and 5.75% from Feb 27, 2010.
- Review liquidity buffers and short-term funding strategies to absorb the incremental CRR impact.
- Communicate the revised CRR requirement to treasury and operations teams for fortnightly maintenance.
- Monitor RBI's macroeconomic assessments for further policy rate signals.
Who it affects
Scheduled Primary (Urban) Co-operative Banks, Treasury departments of UCBs, Compliance and risk management teams at UCBs
What is the new CRR rate for urban co-operative banks?
The CRR is increased to 5.50% of NDTL from February 13, 2010, and further to 5.75% from February 27, 2010.
Why did RBI hike CRR for UCBs?
Based on the macroeconomic assessment in the Third Quarter Review of Monetary Policy 2009-10, RBI decided to absorb excess liquidity to manage inflation.
When do the new CRR rates become effective?
The first stage (5.50%) applies from the fortnight starting February 13, 2010, and the second stage (5.75%) from the fortnight starting February 27, 2010.