What changed
The exemption from CRR and SLR maintenance on incremental FCNR(B) and NRE deposits (maturity 3 years and above, base date July 26, 2013) will be withdrawn from the reporting fortnight beginning March 8, 2014. Only the eligible amount outstanding as on March 7, 2014, will continue to enjoy the exemption until maturity or premature withdrawal. Advances extended against such deposits will still be excluded from outstanding advances for priority sector lending targets for RRBs until repayment.
What it means for you
RRBs must now include incremental FCNR(B)/NRE deposits raised after March 7, 2014, in their CRR and SLR calculations, increasing reserve requirements. The window for using these deposits to reduce priority sector lending targets is also closed for new deposits. Banks should reassess their funding and liquidity strategies, as the earlier incentive to attract long-term foreign currency deposits is no longer available.
What you must do
- Identify all incremental FCNR(B) and NRE deposits (3-year+ maturity, base date July 26, 2013) outstanding as on March 7, 2014, and ensure CRR/SLR exemption is applied only to these until maturity.
- Update internal systems to include new FCNR(B)/NRE deposits raised after March 7, 2014, in CRR/SLR maintenance from the fortnight beginning March 8, 2014.
- Continue to exclude advances against the exempted deposits from priority sector lending outstanding advances until repayment, as per the circular.
- Communicate the change to treasury and compliance teams to avoid any reserve maintenance shortfalls.
Who it affects
Regional Rural Banks (RRBs)
Which deposits are affected by this withdrawal?
Only incremental FCNR(B) and NRE deposits with maturity of three years or more, raised after July 26, 2013, are affected. Deposits outstanding as on March 7, 2014, retain exemption till maturity; new deposits after that date do not qualify.
Does the exclusion from priority sector lending targets continue?
Yes, advances extended against the deposits that qualified for CRR/SLR exemption will still be excluded from outstanding advances for priority sector lending targets for RRBs until those advances are repaid.
When does the withdrawal take effect?
The withdrawal is effective from the reporting fortnight beginning March 8, 2014. Banks must comply from that date onward.