With a view
to monitoring compliance with statutory reserve requirements viz. Cash Reserve
Ratio and Statutory Liquidity Ratio by the Scheduled Commercial Banks (SCBs),
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. The broad details of the
reserve requirements are summarised below:
2. Cash
Reserve Ratio (CRR)
2.1 Maintenance of CRR
Consequent
upon the amendment to sub-section (1) of Section 42 of the RBI Act 1934,effective
from June 22, 2006 the Reserve Bank having regard to the needs of securing monetary
stability in the country, can prescribe the Cash Reserve Ratio (CRR) for Scheduled
Commercial Banks without any floor rate or ceiling rate. The statutory minimum
CRR requirement of 3 per cent of total demand and time liabilities no longer
exists with effect from June 22, 2006, RBI has decided to continue with the
status quo on the rate of CRR required to be maintained by Scheduled Commercial
Banks at the rate of 5 per cent of the demand and time liabilities subject to
the exemptions as indicated in para 2.3.7 of this circular.
2.2 Maintenance
of incremental CRR
In terms
of Section 42(1A) of RBI Act, 1934, the Scheduled Commercial Banks 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 RBI in the notification published in the Gazette
of India, such additional balance being calculated with reference to the excess
of the total of the DTL of the bank as shown in the return referred to in section
42(2) of the Reserve Bank of India 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 Scheduled Commercial
Banks.
2.3 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 (as defined under Section 42 of RBI Act, 1934) or 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 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, the
banks are advised to approach RBI for necessary clarification.
2.3.1 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.
2.3.2 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 and Gold Deposits.
2.3.3 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.
2.3.4 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 correspondent bank under the
remittance facilities scheme and remaining unpaid should be reflected in the
accepting bank's books as an outside liability under head ' Liability to others
in India' 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.
2.3.5 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.
2.3.6 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, NABARD, NHB, SIDBI etc.
b) Amount
of provision for income tax in excess of the actual/estimated liabilities.
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)
Scheduled
Commercial Banks are not required to include inter-bank term deposits / term
borrowing liabilities of original maturities of 15 days and above and upto one
year in 'Liabilities to the Banking System' (item I of Form 'A'). 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) for the purpose of maintenance of CRR.
This concession is not available for maintenance of SLR.
Scheduled
Commercial Banks are not required to include income flows received in advance
such as annual fees and other charges which are not refundable for computation
of Demand and Time Liability/Net Demand and Time Liability of the bank for maintenance
of CRR/SLR.
2.3.7 Exempted
Categories
Scheduled
Commercial Banks 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) Transactions
in Collateralized Borrowing and Lending Obligation (CBLO) with Clearing Corporation
of India Ltd. (CCIL).
iv) Demand
and Time Liabilities in respect of their Offshore Banking Units (OBU's).
2.3.8 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’. 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
FEDAI noon mean rate on the reporting Friday.
2.3.9 Assets
with the Banking System
Assets with
banking system include balances with banks in current accounts, 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.
2.3.10 Procedure
for calculation of CRR
In order
to improve the 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 6th November 1999. Thus, all Scheduled
Commercial Banks are required to maintain the prescribed Cash Reserve Ratio
(which is currently @ 5% per cent with effect from the fortnight beginning October
02, 2004 ) based on their NDTL as on the last Friday of the second preceding
fortnight.
2.3.11 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 upto 70 per cent of the
total CRR requirement on all days of the fortnight with effect from the fortnight
beginning December 28, 2002.
2.3.12 Payment
of interest on eligible cash balances maintained by SCBs with RBI under CRR
Reserve
Bank of India will not pay any interest on the CRR balances maintained by Scheduled
Commercial Bank's with effect from the fortnight beginning June 24, 2006 in
view of the amendment carried out to RBI Act 1934, omitting sub-section (1B)
of section 42.
2.3.13 Penalties
From the
fortnight beginning June 24, 2006 penal interest will be charged as under in
cases of default in maintenance of CRR by Scheduled Commercial Banks:
(i) In cases
of default in maintenance of CRR requirement on a daily basis which is presently
70% of the total Cash Reserve Ratio 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 a 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.
The Scheduled
Commercial Banks (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.
2.3.14 Fortnightly
return in Form A
Under section
42 (2) of RBI Act, 1934, all SCBs are required to submit to RBI a provisional
return in Form 'A' within 7 days from the expiry of the relevant fortnight.
It is used for preparing press communiqué. The final Form 'A' is required
to be sent 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 Scheduled Commercial Banks 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 of
short term and long term, 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 details about 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 the FEDAI noon mean rate
on reporting Friday.
3. Statutory
Liquidity Ratio (SLR)
In terms
of Section 24 (2-A) of the B.R. Act, 1949 all Scheduled Commercial Banks, in
addition to the average daily balance which they are required to maintain under
Section 42 of the RBI, Act, 1934, are required to maintain in India,
a) in cash,
or
b) in gold valued at a price not exceeding the current market price,
or
c) in unencumbered
approved securities valued at a price as specified by the RBI from time to time.
an amount
which shall not, at the close of the business on any day, be less than 25 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 SCBs are required to maintain a uniform SLR of 25 per cent of the total
of their demand and time liabilities in India as on the last Friday of the second
preceding fortnight which is stipulated under section 24 of the B.R. Act, 1949.
3.1 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
Section 24 (2) (B) of B.R. Act 1949 is 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 the liabilities
to /assets with the banking system for computation of DTL/NDTL for the purpose
of CRR as mentioned in para 2.3.7 above.
3.2 Classification
and Valuation of approved securities for SLR
As regards
classification and valuation of approved securities for the purpose of Statutory
Liquidity Ratio, banks may be guided by the instructions contained in our Master
Circular-RBI/2006-07/30 DBOD.No.BP.BC.14/21.04.141/2006-07 dated July 1, 2006
(as updated from time to time) on Prudential norms for classification, valuation
and operation of investment portfolio by banks
3.3 Penalties
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 3 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 5 percent per annum above the Bank Rate for the concerned
days of default on the shortfall.
3.4 Return
in Form VIII (SLR) to be submitted to RBI
i) Banks
should submit to the RBI 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 giving daily position
of (a) value of securities held for the purpose of compliance with SLR and (b)
the excess cash balances maintained by them with RBI in the prescribed format
3.5 Correctness
of computation of demand and time liabilities 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 RBI
for the financial year.
Appendix
Master Circular
Cash Reserve
Ratio (CRR) and Statutory Liquidity Ratio (SLR)
List of circulars
consolidated by the Master Circular