Cash Reserve Ratio (CRR)
1.1 Maintenance of CRR
Commercial Banks are required to maintain with RBI an average cash balance, the amount of which shall not be less than three per cent of the total of the Net Demand and Time Liabilities (NDTL) in India, on a fortnightly basis and RBI is empowered to increase the said rate of CRR to such higher rate not exceeding twenty percent of the Net Demand and Time Liabilities (NDTL). At present, the rate of CRR is 4.00 per cent of the NDTL.
1.2 Computation of Demand and Time Liabilities
Liabilities of a bank may be in the form of demand or time deposits or borrowings or other miscellaneous items of liabilities. Liabilities of the banks may be towards banking system towards others in the form of Demand and Time deposits or borrowings or other miscellaneous items of liabilities. Reserve Bank of India has been authorized in terms to classify any particular liability.
1.2.1 Demand Liabilities
‘Demand Liabilities’ include all liabilities which are payable on demand and they include current deposits, demand liabilities portion of savings bank deposits, margins held against letters of credit/guarantees, balances in overdue fixed deposits, cash certificates and cumulative/recurring deposits, outstanding Telegraphic Transfers (TTs), Mail Transfer (MTs), Demand Drafts (DDs), unclaimed deposits, credit balances in the Cash Credit account and deposits held as security for advances which are payable on demand. Money at Call and Short Notice from outside the Banking System should be shown against liability to others.
1.2.2 Time Liabilities
Time Liabilities are those which are payable otherwise than on demand and they include fixed deposits, cash certificates, cumulative and recurring deposits, time liabilities portion of savings bank deposits, staff security deposits, margin held against letters of credit if not payable on demand, deposits held as securities for advances which are not payable on demand, India Millennium Deposits and Gold Deposits.
1.2.3 Borrowings from banks abroad
Loans/borrowings from abroad by banks in India will be considered as ‘liabilities to others’ and will be subject to reserve requirements.
1.2.4 Arrangements with correspondent banks for remittance facilities
When a bank accepts funds from a client under its remittance facilities scheme, it becomes a liability (liability to others) in its books. The liability of the bank accepting funds will extinguish only when the correspondent bank honours the drafts issued by the accepting bank to its customers. As such, the balance amount in respect of the drafts issued by the accepting bank on its 5 correspondent bank under the remittance facilities scheme and remaining unpaid should be reflected in the accepting bank’s books as an outside liability and the same should also be taken into account for computation of NDTL for CRR/SLR purpose.
The amount received by correspondent banks has to be shown as ‘Liability to the Banking System’ by them and not as ‘Liability to others’ and this liability could be netted off by the correspondent banks against the inter-bank assets. Likewise sums placed by banks issuing drafts/interest/dividend warrants are to be treated as ‘Assets with Banking System’ in their books and can be netted off from their inter-bank liabilities.
1.2.5 Other Demand and Time Liabilities (ODTL)
Other Demand and Time Liabilities (ODTL) include interest accrued on deposits, bills payable, unpaid dividends, suspense account balances representing amounts due to other banks or public, net credit balances in branch adjustment account, any amounts due to the “Banking System” which are not in the nature of deposits or borrowing. Such liabilities may arise due to items, like (i) collection of bills on behalf of other banks, (ii) interest due to other banks and so on. If a bank cannot segregate from the total of “Other Demand and Time Liabilities” (ODTL) the liabilities to the banking system, the entire ‘Other Demand and Time Liabilities’ may be shown against item II ( c ) ‘Other Demand and Time Liabilities’ of the return in Form ‘A’ and average CRR is required to be maintained on it by all Scheduled Commercial Banks; Participation Certificate issued to other banks, the balances outstanding in the blocked account pertaining to segregated outstanding credit entries for more than 5 years in inter branch adjustment account, the margin money on bills purchased / discounted and gold borrowed by banks from abroad, also should be included in ODTL.
1.2.6 Liabilities not to be included for DTL/NDTL computation
The under-noted liabilities will not form part of liabilities for the purpose of CRR:
a) Paid up capital, reserves, any credit balance in the Profit & Loss Account of the bank, amount availed of as refinance from the RBI, and apex financial institutions like Exim Bank, IDBI, NABARD, NHB, SIDBI etc.
b) Amount of provision for income tax in excess of the actual estimated liabilities.6
c) Amount received from DICGC (Deposit insurance and credit guarantee corporation)towards claims and held by banks pending adjustments thereof.
d) Amount received from ECGC (Export Credit Guarantee Corporation of India Limited) by invoking the guarantee.
e) Amount received from insurance company on ad-hoc settlement of claims pending Judgment of the Court.
f) Amount received from the Court Receiver.
g) The liabilities arising on account of utilization of limits under Bankers Acceptance Facility (BAF)
h) Interbank term deposits/term borrowing liabilities of original maturity of 15 days and above and up to one year with effect from fortnight beginning August 11, 2001.
1.2.7 Exempted Categories
Scheduled Commercial Banks are exempted from maintaining average CRR on the following
i) Credit balances in ACU (US$) Accounts.
ii) Transactions in Collateralized Borrowing and Lending Obligation (CBLO) with Clearing Corporation of India Ltd. (CCIL).
iii) Demand and Time Liabilities in respect of their Offshore Banking Units (OBUs).
Although Scheduled Commercial Banks are exempted from maintaining average CRR on the above liabilities, they are required to maintain 3 per cent statutory reserve thereon. Scheduled Commercial Banks are not required to include inter-bank term deposits / term borrowing liabilities of original maturities of 15 days and above and up to one year in ‘Liabilities to the Banking. Similarly banks should exclude their inter-bank assets of term deposits and term lending of original maturity of 15 days and above and up to one year in ‘Assets with the Banking System’ for the purpose of maintenance of CRR. This concession is not available for maintenance of SLR.
1.2.11 Maintenance of CRR on daily basis
With a view to providing flexibility to banks in choosing an optimum strategy of holding reserves depending upon their intra period cash flows, all Scheduled Commercial Banks, are required to maintain minimum CRR balances up to 70 per cent of the total CRR requirement on all days of the fortnight. If any Scheduled Commercial Bank fails to observe the minimum level of CRR on any day/s during the relevant fortnight, the bank will not be paid interest to the extent of one fourteenth of the eligible amount of interest, even if there is no shortfall in the CRR on average basis.
Statutory Liquidity Ratio (SLR)
SLR is 21.5% of NDTL as of June 2015
All Scheduled Commercial Banks, in addition to the average daily balance which they are required to maintain,
a) In cash, or
b) In gold valued at a price not exceeding the current market price,
c) In unencumbered approved securities valued at a price as specified
By the RBI from time to time.
an amount of which shall not, at the close of the business on any day, be less than 21.5 per cent or such other percentage not exceeding 40 per cent as the RBI may from time to time, by notification in gazette of India, specify, of the total of its demand and time liabilities in India as on the last Friday of the second preceding fortnight,
At present, all Scheduled Commercial Banks are required to maintain a uniform SLR of 21.5 per cent of the total of their demand and time liabilities in India as on the last Friday of the second Preceding fortnight
2.1 Procedure for computation of demand and time liabilities for SLR
The procedure to compute total net demand and time liabilities for the purpose of SLR under similar to the procedure followed for CRR purpose. However, it is clarified that Scheduled Commercial Banks are required to include inter-bank term deposits term borrowing liabilities of original maturities of 15 days and above and up to one year in ‘Liabilities to the Banking System’. Similarly banks should include their inter-bank assets of term deposits and term lending of original maturity of 15 days and above and up to one year in ‘Assets with the Banking System’ for the purpose of maintenance of SLR. However, both the above liabilities and assets are not to be included in liabilities/assets to the banking system for computation of DTL/NDTL for the purpose of CRR
2.2 Valuation of approved securities for SLR
The entire investment portfolio of the banks (including SLR Securities) will be classified under three categories viz.’ Held to Maturity’, ‘Available for sale’ and ‘Held for Trading’. Investment classified under Held to Maturity category need not be marked to market and will be carried at acquisition cost unless it is more than the face value. In such a case, the premium should be amortised over a period remaining to maturity. Individual scrips in the Available for Sale category will be marked to market at the year-end or at more frequent intervals. The net depreciation under each classification should be recognized and fully provided for and any appreciation should be ignored. The book value of the individual securities would not undergo any change after the revaluation. The individual scrips in the Held for Trading category will be revalued at monthly or at more frequent intervals and net appreciation/depreciation under each classification will be recognized in income account. The book value of the individual scrip will be changed with revaluation.