What changed
CRR for non-scheduled primary urban co-operative banks increased from 3% to 4% of demand and time liabilities, matching the scheduled UCB rate. SLR for all primary urban co-operative banks reduced from 25% to 22.5% of demand and time liabilities. Both changes take effect from the fortnight beginning July 12, 2014.
What it means for you
Non-scheduled UCBs now face higher CRR, locking more funds with RBI, which may compress their net interest margins. The SLR cut frees up about 2.5% of deposits for lending or investment, improving liquidity. However, from April 1, 2015, term deposits with PSBs and balances with state/district co-op banks will no longer count toward SLR, forcing UCBs to shift to approved securities or cash.
What you must do
- Adjust CRR maintenance to 4% from July 12, 2014 fortnight; ensure compliance for non-scheduled UCBs.
- Reduce SLR holdings to 22.5% from July 12, 2014; reallocate freed funds prudently.
- Review SLR-eligible assets: term deposits with PSBs are interim only until March 31, 2015; plan transition to approved securities or cash by April 1, 2015.
- For UCBs not holding SLR in cash, gold, or approved securities, comply with earlier circulars (Oct 2001, Nov 2008) until March 31, 2015.
Who it affects
All Primary (Urban) Co-operative Banks (UCBs), Non-Scheduled UCBs (directly impacted by CRR hike), Scheduled UCBs (SLR reduction applies to all)
When do the CRR and SLR changes take effect?
Both changes are effective from the fortnight beginning July 12, 2014.
Can UCBs still use term deposits with PSBs for SLR after March 31, 2015?
No. Term deposits with PSBs are eligible only as an interim measure until March 31, 2015. From April 1, 2015, they will not count toward SLR.
What is the new SLR percentage and how does it compare to the old one?
The SLR is reduced from 25% to 22.5% of total demand and time liabilities, a cut of 250 basis points.