Banks To Keep 80% Minimum CRR On Daily Basis

Mumbai, October 29: | Updated: Oct 30 2002, 05:30am hrs
The Reserve Bank of India (RBI) has asked banks to maintain a minimum of 80 per cent of the required cash reserve ratio (CRR) on a daily basis with effect from the fortnight beginning November 16, 2002. The minimum level of 80 per cent would be applicable for all days in a reporting fortnight, said the central bank in its credit policy released on Tuesday.

Maintaining these reserves will be a tough act for banks. Nonetheless, it will reduce the volatility in the over night call money rates and thus is a positive move, opined Standard Chartered Bank regional general manager Jaspal Bindra. At present, banks are required to maintain a minimum of 50 per cent of the required reserves in the first week and a minimum of 65 per cent in the second week of the reporting fortnight.

Despite this flexibility on the daily maintenance, the actual daily CRR maintenance of majority of banks in relation to the prescribed level is now quite high. While moving towards a low CRR, it is necessary that the demand for bank reserves in the inter-bank market is modulated and the volatility in CRR maintenance is minimised, the RBI observed in its policy.

The RBI will also pay interest on eligible CRR balances on a monthly basis with effect from April 2003. In order to facilitate this, banks have been urged to put in place proper technology including adoption of the software package which will help transmission of Form A data by banks directly to the RBI.

At present, all scheduled commercial banks are paid interest at the bank rate on eligible cash balances maintained with the RBI under CRR requirement, without detailed scrutiny by the central bank, on the basis of quarterly interest claim statement submitted by banks. Such interest payment is made to all banks within one month after the end of the quarter, stated the credit policy.