Introduction Revised Requirement for Maintaining Additional CRR
In accordance with Section 42(1) of the Reserve Bank of India Act, 1934, all Scheduled Banks are required to maintain a Cash Reserve Ratio (CRR) of 4.50% of their Net Demand and Time Liabilities (NDTL). This regulation ensures that banks maintain sufficient reserves to meet unforeseen liquidity requirements. Revised Requirement for Maintaining Additional CRR under Reserve Bank of India Act, 1934
All scheduled banks are required to maintain a cash reserve ratio (CRR) of 4.50% of their net demand and time liabilities (NDTL) in accordance with Section 42(1) of the Reserve Bank of India Act, 1934. However, the Reserve Bank of India (RBI) has decided to introduce a revised directive under Section 42(1A) of the RBI Act, 1934, following a thorough review of the current liquidity conditions. All Scheduled Commercial Banks, Scheduled Regional Rural Banks, Scheduled Primary (Urban) Co-operative Banks, and Scheduled State Co-operative Banks are subject to this directive.
However, recognizing the need for further stability in the banking sector, the Reserve Bank of India (RBI) has recently introduced a revised directive under Section 42(1A) of the RBI Act, 1934. This directive applies to Scheduled Commercial Banks, Regional Rural Banks, Scheduled Primary (Urban) Co-operative Banks, and Scheduled State Co-operative Banks.
Effective from the fortnight beginning August 12, 2023, these banks are now required to maintain an Incremental CRR (I-CRR) of 10% on the increase in their NDTL between May 19, 2023, and July 28, 2023. This additional requirement aims to enhance the banks’ capacity to withstand unforeseen liquidity demands and maintain financial stability.
Requirement for Additional CRR (I-CRR)
These banks are now required to maintain an incremental CRR (I-CRR) of 10% on the increase in their NDTL between May 19, 2023, and July 28, 2023, starting with the two weeks beginning August 12, 2023. Depending on the circumstances, the RBI may review the I-CRR on September 8, 2023, or earlier.
To provide legal backing to this revised requirement, the RBI has issued a notification dated August 10, 2023, with the reference number DOR.RET.REC.30/12.01.001/2023-24. This notification exercises the powers conferred by sub-section (1A) of Section 42 of the Reserve Bank of India Act, 1934.
Notification Information Additional CRR
The RBI will review the I-CRR on September 8, 2023, or earlier, depending on prevailing conditions. This allows the RBI to assess the impact of the additional requirement and make any necessary adjustments to ensure the continued smooth functioning of the banking system.
To provide legal backing to this revised requirement, the RBI has issued a notification dated August 10, 2023, with the reference number DOR.RET.REC.30/12.01.001/2023-24. This notification exercises the powers conferred by sub-section (1A) of Section 42 of the Reserve Bank of India Act, 1934.
A notification from the RBI with the date of August 10, 2023 and reference number DOR.RET.REC.30/12.01.001/2023-24 has been released. The Reserve Bank of India Act, 1934’s Section 42’s sub-section (1A) gives rise to the authority used in this notification.
Requirements Particular to Banks
All Scheduled Commercial Banks, Regional Rural Banks, Scheduled Primary (Urban) Co-operative Banks, and Scheduled State Co-operative Banks are required to maintain the following in accordance with the notification:
- Additional Average Daily Balance:
- The average daily balance that banks must maintain must be greater than the one already required by sub-section (1) of Section 42.
- The amount of the additional average daily balance should be equal to or greater than 10% of the increase in their net demand and time liabilities between May 19, 2023, and July 28, 2023.
Under this notification, banks must maintain an additional average daily balance that exceeds the balance already mandated by sub-section (1) of Section 42. The amount of this additional average daily balance should be equal to or greater than 10% of the increase in their net demand and time liabilities between May 19, 2023, and July 28, 2023.
Compliance with these revised requirements is crucial for banks to fulfill their obligations under the Reserve Bank of India Act, 1934. By maintaining an additional CRR, banks contribute to the overall stability and resilience of the banking sector, which ultimately strengthens the financial system as a whole.
The revised directive reflects the RBI’s commitment to ensuring sound financial practices and safeguarding the interests of depositors and the economy. By taking proactive measures, the RBI aims to mitigate risks and foster a secure banking environment in India.
Conclusion
These revised requirements for maintaining additional CRR aim to address the current liquidity conditions and ensure the stability of the banking sector. It is essential for the specified banks to comply with this directive to fulfill their obligations under the Reserve Bank of India Act, 1934.
