RBI Master Circular - Cash Reserve Ratio (CRR) and
Statutory Liquidity Ratio (SLR)
A. Purpose - This
master circular prescribes the broad details of the reserve requirements.
B. Classification - A
statutory guideline issued by the RBI under Section 35A of the BR Act, 1949.
C. Previous Instructions - This master circular is a compilation of the instructions contained in
the circulars issued by the Reserve Bank of India which is operational as on
the date of this circular.
D. Scope of Application - This master circular is applicable to all Scheduled Commercial Banks
(SCBs) excluding Regional Rural Banks.
E. Structure
1. Introduction
1.1 CRR
2.1 SLR
2. Guidelines
1.1 to 1.18 Procedure for computation of CRR
2.1 to 2.5 Procedure for computation of SLR
3. Annex
4. Appendix
With a view to monitoring compliance of maintenance
of statutory reserve requirements viz. CRR and SLR by the SCBs, the Reserve Bank of
India has prescribed statutory returns i.e. Form A return
(for CRR) under Section 42 (2) of the RBI Act, 1934 and Form VIII return (for
SLR) under Section 24 of the Banking Regulation Act, 1949.
In terms of Section 42 (1) of the Reserve Bank of
India Act, 1934 the Reserve Bank having regard to the needs of securing the
monetary stability in the country, prescribes the CRR for SCBs without any
floor or ceiling rate.
At present, effective from the fortnight beginning
March 10, 2012, the CRR is prescribed at 4.75 per cent of a bank's total of DTL
adjusted for the exemptions discussed in Sections 1.11 and 1.12.
In terms of Section 42(1-A) of RBI Act, 1934, the
SCBs are required to maintain, in addition to the balances prescribed under
Section 42(1) of the Act, an additional average daily balance, the amount of which
shall not be less than the rate specified by the Reserve Bank in the
notification published in the Gazette of India from time to time. Such
additional balance will be calculated with reference to the excess of the total
of DTL of the bank as shown in the Returns referred to in Section 42(2) of the
Act, 1934 over the total of its DTL at the close of the business on the date
specified in the notification.
At present no incremental CRR is required to be
maintained by the banks.
Liabilities of a bank may be in the form of demand
or time deposits or borrowings or other miscellaneous items of liabilities. As
defined under Section 42 of the RBI Act, 1934, liabilities of a bank may be
towards the banking system or towards others in the form of demand and time
deposits or borrowings or other miscellaneous items of liabilities. The Reserve
Bank of India has been authorized in terms of Section 42 (1C) of the RBI Act,
1934, to classify any particular liability and hence for any doubt regarding
classification of a particular liability, banks are advised to approach the RBI
for necessary clarification.
Demand Liabilities of a bank are liabilities which
are payable on demand. These 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
Transfers (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.
Time Liabilities of a bank are those which are
payable otherwise than on demand. These 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 and Gold deposits.
1.7 Other Demand and Time Liabilities (ODTL)
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 the liabilities to the banking system, from the total of ODTL,
the entire ODTL may be shown against item II (c) 'Other Demand and Time
Liabilities' of the return in Form 'A' and average CRR maintained on it by all
SCBs .
Participation Certificates 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.
Cash collaterals received under collateralized
derivative transactions should be included in the bank’s DTL/NDTL for the
purpose of reserve requirements as these are in the nature of ‘outside
liabilities’.
1.8 Assets with the Banking System
Assets with the banking system include balances
with banks in current account, balances with banks and notified financial
institutions in other accounts, funds made available to banking system by way
of loans or deposits repayable at call or short notice of a fortnight or less
and loans other than money at call and short notice made available to the
banking system. Any other amounts due from banking system which cannot be
classified under any of the above items are also to be taken as assets with the
banking system.
1.9 Borrowings from abroad by banks in India
Loans/borrowings from abroad by banks in India will
be considered as 'liabilities to others' and will be subject to reserve
requirements. Upper Tier II instruments raised and maintained abroad shall be
reckoned as liability for the computation of DTL for the purpose of reserve
requirements.
1.10 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 correspondent bank under the remittance facilities scheme
and remaining unpaid should be reflected in the accepting bank's books as
liability under the head ' Liability to others in India' and the same should
also be taken into account for computation of DTL 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.
1.11 Liabilities not to be included for DTL/NDTL
computation
The under-noted liabilities will not form part of
liabilities for the purpose of CRR and SLR:
a) Paid up capital, reserves, any credit balance in
the Profit & Loss Account of the bank, amount of any loan taken from the
RBI and the amount of refinance taken from Exim Bank, NHB, NABARD, SIDBI;
b) Net income tax provision;
c) Amount received from DICGC towards claims and
held by banks pending adjustments thereof;
d) Amount received from ECGC 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) District Rural Development Agency (DRDA) subsidy
of Rs.10, 000/- kept in Subsidy Reserve Fund account in the name of Self Help
Groups;
i) Subsidy released by NABARD under Investment
Subsidy Scheme for Construction/Renovation/Expansion of Rural Godowns;
j) Net unrealized gain/loss arising from
derivatives transaction under trading portfolio;
k) Income flows received in advance such as annual
fees and other charges which are not refundable.
l) Bill rediscounted by a bank with eligible
financial institutions as approved by RBI and,
(m) Provision not being a specific liability
arising from contracting additional liability and created from profit and loss
account.
SCBs are exempted from maintaining CRR on the
following liabilities:
i. Liabilities to the banking system in India as
computed under Clause (d) of the explanation to Section 42(1) of the RBI Act,
1934;
ii. Credit balances in ACU (US$) Accounts;
iii Demand and Time Liabilities in respect of their
Offshore Banking Units (OBU);and
iv SCBs 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 System" (item 1 of
Form A return). 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" (item III of Form A
return) for the purpose of maintenance of CRR. The interest accrued on these
deposits is also exempted from reserve requirements.
1.13 Loans out of FCNR (B) Deposits and IBFC
Deposits
Loans out of Foreign Currency Non–Resident Accounts
(Banks), (FCNR [B] Deposits Scheme) and Inter-Bank Foreign Currency (IBFC)
deposits should be included as part of bank credit while reporting in Form ’A’
return. For the purpose of reporting, banks should convert their FCNR (B)
deposits, overseas foreign currency assets and bank credit in India in foreign
currency in 4 major currencies into rupees at RBI Reference Rates announced on
the Reserve Bank of India website instead of indicative rates announced by
FEDAI at 12:00 noon.
1.14 Procedure for Computation of CRR
In order to improve cash management by banks, as a
measure of simplification, a lag of one fortnight in the maintenance of
stipulated CRR by banks has been introduced with effect from the fortnight
beginning November 06, 1999.
1.15 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
fortnight cash flows, all SCBs are required to maintain minimum CRR balances up
to 70 per cent of the average daily required reserves for a reporting fortnight
on all days of the fortnight with effect from the fortnight beginning December
28, 2002.
1.16 No Interest Payment on Eligible Cash Balances
maintained by SCBs with RBI under CRR
In view of the amendment carried out to RBI Act
1934, omitting sub-section (1B) of Section 42, the Reserve Bank does not pay
any interest on the CRR balances maintained by SCBs with effect from the
fortnight beginning March 31, 2007.
1.17 Fortnightly Return in Form A (CRR)
Under Section 42 (2) of the RBI Act, 1934, all SCBs
are required to submit to Reserve Bank a provisional Return in Form 'A' within
7 days from the expiry of the relevant fortnight which is used for preparing
press communiqué. The final Form 'A' return is required to be submitted to RBI
within 20 days from expiry of the relevant fortnight. Based on the
recommendation of the Working Group on Money Supply: Analytics and Methodology
of Compilation, all SCBs in India are required to submit from the fortnight beginning
October 9, 1998, Memorandum to form 'A' return giving details about paid-up
capital, reserves, time deposits comprising short-term (of contractual maturity
of one year or less) and long-term (of contractual maturity of more than one
year),certificates of deposits, NDTL, total CRR requirement etc., Annexure A to
Form ‘A’ return showing all foreign currency liabilities and assets and
Annexure B to Form ‘A’ return giving detailsabout investment in approved
securities, investment in non-approved securities, memo items such as
subscription to shares /debentures / bonds in primary market and subscriptions
through private placement. For reporting in Form 'A' return, banks should
convert their overseas foreign currency assets and bank credit in India in foreign
currency in four major currencies viz., US dollar, GBP, Japanese Yen and Euro
into rupees at RBI Reference Rates announced on the Reserve Bank of India
website instead of indicative rates announced by FEDAI at 12:00 noon.
The present practice of calculation of the
proportion of demand liabilities and time liabilities by SCBs in respect of
their savings bank deposits on the basis of the position as at the close of
business on 30th September and 31st March every year (cf. RBI circular
DBOD.No.BC.142/09.16.001/97-98 dated November 19, 1997) shall continue in the
new system of interest application on savings bank deposits on a daily product
basis. The average of the minimum balances maintained in each of the month
during the half year period shall be treated by the bank as the amount
representing the "time liability” portion of the savings bank deposits.
When such an amount is deducted from the average of the actual balances
maintained during the half year period, the difference would represent the "demand
liability” portion. The proportions of demand and time liabilities so obtained
for each half year shall be applied for arriving at demand and time liabilities
components of savings bank deposits for all reporting fortnights during the
next half year.
From the fortnight beginning June 24, 2006, penal
interest will be charged as under in cases of default in maintenance of CRR by
SCBs :
(i) In case of default in maintenance of CRR
requirement on a daily basis which is presently 70 per cent of the total CRR
requirement, penal interest will be recovered for that day at the rate of three
per cent per annum above the Bank Rate on the amount by which the amount
actually maintained falls short of the prescribed minimum on that day and if
the shortfall continues on the next succeeding day/s, penal interest will be
recovered at the rate of five per cent per annum above the Bank Rate.
(ii) In cases of default in maintenance of CRR on
average basis during a fortnight, penal interest will be recovered as envisaged
in sub-section (3) of Section 42 of Reserve Bank of India Act, 1934.
SCBs are required to furnish the particulars such
as date, amount, percentage, reason for default in maintenance of requisite CRR
and also action taken to avoid recurrence of such default.
2. Maintenance of Statutory Liquidity Ratio (SLR)
Consequent upon amendment to the Section 24 of the
Banking Regulation Act,1949 through the Banking Regulation (Amendment) Act,
2007 replacing the Regulation (Amendment) Ordinance, 2007, effective January
23, 2007, the Reserve Bank can prescribe the SLR for SCBs in specified assets.
The value of such assets of a SCB shall not be less than such percentage not
exceeding 40 per cent of its total DTL in India as on the last Friday of the
second preceding fortnight as the Reserve Bank may, by notification in the
Official Gazette, specify from time to time.
SCBs can participate in the Marginal Standing
Facility (MSF) scheme introduced by Reserve Bank with effect from May 09, 2011.
Under this facility, the eligible entities may borrow up to two per cent of
their respective NDTL outstanding at the end of the second preceding fortnight
from April 17, 2012. Additionally, the eligible entities may also continue to
access overnight funds under this facility against their excess SLR holdings.
In the event, the banks’ SLR holding falls below the statutory requirement up
to two per cent of their NDTL, banks will not have the obligation to seek a
specific waiver for default in SLR compliance arising out of use of this
facility in terms of notification issued under sub section (2A) of section 24
of the Banking Regulation Act, 1949.
(a) Cash or
(b) Gold valued at a price not exceeding the
current market price, or
(c) Investment in the following instruments which
will be referred to as "Statutory Liquidity Ratio (SLR) securities":
(i) Dated securities issued up to May 06, 2011 as
listed in the Annex to Notification DBOD.No.Ret.91/12.02.001/2010-11 dated May
09, 2011.
(ii) Treasury Bills of the Government of India;
(iii) Dated securities of the Government of India
issued from time to time under the market borrowing programme and the Market
Stabilization Scheme;
(iv) State Development Loans (SDLs) of the State
Governments issued from time to time under the market borrowing programme; and
(v) Any other instrument as may be notified by the
Reserve Bank of India.
Provided that the securities (including margin)
referred to above, if acquired under the Reserve Bank- Liquidity Adjustment
Facility (LAF), shall not be treated as an eligible asset for this purpose.
Explanation:
1. For the above purpose, "market borrowing
programme" shall mean the domestic rupee loans raised by the Government of
India and the State Governments from the public and managed by the Reserve Bank
of India through issue of marketable securities, governed by the Government
Securities Act, 2006 and the Regulations framed there under, through an auction
or any other method, as specified in the Notification issued in this regard.
2. Encumbered SLR securities shall not be included
for the purpose of computing the percentage specified above.
Provided that for the purpose of computing the
percentage of assets referred to hereinabove, the following shall be included,
namely:
(i) securities lodged with another institution for
an advance or any other credit arrangement to the extent to which such
securities have not been drawn against or availed of; and,
(ii) securities offered as collateral to the
Reserve Bank of India for availing liquidity assistance from Marginal Standing
Facility (MSF) up to two percent of the total NDTL in India carved out of the
required SLR portfolio of the bank concerned.
3. In computing the amount for the above purpose,
the following shall be deemed to be cash maintained in India:
(i) The deposit required under sub-section (2) of
Section 11 of the Banking Regulation Act, 1949 to be made with the Reserve Bank
by a banking company incorporated outside India;
(ii) Any balances maintained by a scheduled bank
with the Reserve Bank in excess of the balance required to be maintained by it
under Section 42 of the Reserve Bank of India Act, 1934 (2 of 1934);
(iii) Net balances in current accounts with other
scheduled commercial banks in India.
Note:
1. With a view to disseminating information on the
SLR status of a Government security, it has been decided that:
(i) the SLR status of securities issued by the
Government of India and the State Governments will be indicated in the Press
Release issued by the Reserve Bank of India at the time of issuance of the
securities; and,
(ii) an updated and current list of the SLR
securities will be posted on the Reserve Bank's website (www.rbi.org.in)
under the link " Database on Indian Economy)
2. The cash management bill will be treated as
Government of India Treasury Bill and accordingly shall be treated as SLR
securities.
2.1 Procedure for Computation of SLR
The procedure to compute total NDTL for the purpose
of SLR under Section 24 (2) (B) of B.R. Act 1949 is broadly similar to the
procedure followed for CRR. The liabilities mentioned under Section 1.11 will
not form part of liabilities for the purpose of SLR also. SCBs are required to
include inter-bank term deposits / term borrowing liabilities of all maturities
in 'Liabilities to the Banking System'. Similarly, banks should include their
inter-bank assets of term deposits and term lending of all maturities in
'Assets with the Banking System' for computation of NDTL for SLR purpose.
2.2 Classification and Valuation of Approved
Securities for SLR
As regards classification and valuation of approved
securities, banks may be guided by the instructions contained in our Master
Circular (as updated from time to time) on Prudential Norms for classification,
valuation and operation of investment portfolio by banks.
If a banking company fails to maintain the required
amount of SLR, it shall be liable to pay to RBI in respect of that default, the
penal interest for that day at the rate of three per cent per annum above the
Bank Rate on the shortfall and if the default continues on the next succeeding
working day, the penal interest may be increased to a rate of five per cent per
annum above the Bank Rate for the concerned days of default on the shortfall.
2.4 Return in Form VIII (SLR)
i) Banks should submit to the Reserve Bank before
20th day of every month, a return in Form VIII showing the amounts of SLR held
on alternate Fridays during immediate preceding month with particulars of their
DTL in India held on such Fridays or if any such Friday is a Public Holiday
under the Negotiable Instruments Act, 1881, at the close of business on
preceding working day.
ii) Banks should also submit a statement as
annexure to Form VIII return giving daily position of (a) assets held for the
purpose of compliance with SLR, (b) the excess cash balances maintained by them
with RBI in the prescribed format, and (c) the mode of valuation of securities.
2.5 Correctness of Computation of DTL to be
certified by Statutory Auditors
The Statutory Auditors should verify and certify
that all items of outside liabilities, as per the bank’s books had been duly
compiled by the bank and correctly reflected under DTL/NDTL in the
fortnightly/monthly statutory returns submitted to Reserve Bank for the
financial year.
Source; RBI.org.in
that ‘for monetary transmission to occur, lending rates have to be sensitive to the policy rate. With the introduction of the Base Rate on July 1, 2010 banks could set their actual lending rates on loans and advances with reference to the Base Rate. At present, banks are following different methodologies in computing their Base Rate – on the basis of average cost of funds, marginal cost of funds or blended cost of funds (liabilities). Base Rates based on marginal cost of funds should be more sensitive to changes in the policy rates. In order to improve the efficiency of monetary policy transmission, the Reserve Bank will encourage banks to move in a time-bound manner to marginal-cost-of-funds-based determination of their Base Rate’.