What changed
The Cash Reserve Ratio for scheduled commercial banks was lowered by 75 basis points, from 5.50% to 4.75% of net demand and time liabilities. The change takes effect from the fortnight starting March 10, 2012, replacing the earlier January 24, 2012 circular.
What it means for you
Banks will need to hold less cash with RBI, releasing funds for lending or investment. This move aims to ease tight liquidity conditions and support credit growth. Lower CRR reduces the cost of funds for banks, potentially improving net interest margins.
What you must do
- Recalculate CRR maintenance at 4.75% of NDTL from March 10, 2012 fortnight.
- Adjust liquidity management and treasury operations to deploy freed-up funds.
- Review lending rates and credit growth targets in light of improved liquidity.
- Update internal systems and reporting for the new CRR requirement.
Who it affects
All scheduled commercial banks (excluding Regional Rural Banks), Treasury and ALM teams, Credit and lending departments
What is the new CRR rate and when does it apply?
The CRR is reduced to 4.75% of NDTL, effective from the fortnight beginning March 10, 2012.
Why did RBI cut the CRR?
The decision was based on a review of current and evolving liquidity conditions, as mentioned in RBI's press release.
Does this apply to Regional Rural Banks?
No, the circular is addressed to all scheduled commercial banks excluding Regional Rural Banks.