What changed
RBI issued a directive under Section 42(1A) requiring scheduled banks to maintain an additional 10% CRR on the increase in NDTL between May 19 and July 28, 2023. This incremental CRR (I-CRR) is effective from the fortnight starting August 12, 2023, and will be reviewed on September 8, 2023 or earlier.
What it means for you
Banks will need to set aside 10% of any NDTL growth during the specified period as extra reserves with RBI, reducing lendable resources. This move aims to drain excess liquidity from the banking system without altering the base CRR of 4.50%. Lenders may face tighter liquidity and potential pressure on net interest margins.
What you must do
- Calculate the increase in NDTL from May 19 to July 28, 2023, for your bank.
- Ensure maintenance of additional 10% CRR on that incremental NDTL from August 12, 2023.
- Monitor liquidity positions closely and adjust asset-liability management strategies.
- Prepare for possible extension or withdrawal of I-CRR after the September 8 review.
Who it affects
All Scheduled Commercial Banks, Regional Rural Banks, All Scheduled Primary (Urban) Co-operative Banks, All Scheduled State Co-operative Banks
What is the base CRR requirement under Section 42(1)?
All scheduled banks must maintain a CRR of 4.50% of Net Demand and Time Liabilities (NDTL) with RBI.
When does the incremental CRR become effective and when will it be reviewed?
The I-CRR is effective from the fortnight beginning August 12, 2023, and will be reviewed on September 8, 2023 or earlier.
How is the incremental CRR calculated?
It is 10% of the increase in NDTL between May 19, 2023 and July 28, 2023, maintained as an additional average daily balance over the existing CRR requirement.