What changed
The CRR, which was reduced by 100 bps to 3% of NDTL for one year from March 28, 2020, will now be restored in two phases. Effective from the fortnight starting March 27, 2021, CRR rises to 3.5%, and from the fortnight beginning May 22, 2021, it goes to 4%.
What it means for you
Banks will need to set aside more funds as reserves, reducing lendable resources and putting mild pressure on net interest margins. The phased approach gives banks time to adjust liquidity management. This signals RBI's confidence that the worst of the pandemic stress is over and normalisation is underway.
What you must do
- Review your liquidity buffer and NDTL projections to meet the 3.5% CRR from March 27, 2021.
- Prepare for the second hike to 4% from May 22, 2021, by recalibrating asset-liability management.
- Communicate the impact on treasury operations and lending capacity to your ALCO and risk teams.
Who it affects
All scheduled commercial banks, Treasury and ALM desks, Lending and credit teams
Why is RBI restoring CRR now?
The 100 bps cut was a temporary COVID relief for one year ending March 26, 2021. RBI decided to gradually restore it in two phases to avoid market disruption, as announced in the February 5, 2021 policy statement.
What is the exact timeline for the CRR hike?
CRR goes to 3.5% of NDTL from the reporting fortnight starting March 27, 2021, and to 4% from the fortnight beginning May 22, 2021.
Does this affect all banks uniformly?
Yes, the CRR requirement applies to all scheduled banks as per Section 42 of the RBI Act, 1934 and Section 18 of the Banking Regulation Act, 1949.