Master Circular - Cash Reserve Ratio (CRR) and Statutory Liq

Master Circular - Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)

RBI/2009-10/163
DBOD.No.Ret. BC.45/12.01.001/2009-10

September 18, 2009
Bhadra 26, 1931 (Saka)

All Scheduled Commercial Banks
(excluding Regional Rural Banks)

Dear Sir,

Master Circular - Cash Reserve Ratio (CRR)
and Statutory Liquidity Ratio (SLR)

Please refer to the Master Circular RBI/2006-07/145 DBOD.No.Ret.BC.34/12.01.001/2006-07 dated October 11, 2006 on the above mentioned subject. The Master Circular has been suitably updated incorporating instructions issued up to September 18, 2009. The Master Circular has also been placed on the RBI's website (http://www.rbi.org.in). A copy of the Master Circular is enclosed.

Yours faithfully,

(Vinay Baijal)
Chief General Manager

   Table of Contents

Master Circular  -  Cash Reserve Ratio (CRR) and
Statutory Liquidity Ratio (SLR)

Purpose

With a view to monitoring compliance of maintenance of statutory reserve requirements viz. Cash Reserve Ratio and Statutory Liquidity Ratio by the Scheduled Commercial Banks (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. This circular prescribes the broad details of the reserve requirements.

Previous Instructions

This master circular is a compilation of the instructions contained in the circulars issued by the Reserve Bank of India which are operational as on the date of this circular.

Application

This master circular is applicable to all Scheduled Commercial Banks excluding Regional Rural Banks.

Structure

1. Introduction

Cash Reserve Ratio

2.1 Statutory Liquidity Ratio

2. Guidelines

1.1 to 1.18        Procedure for computation of Cash Reserve Ratio
2.1 to 2.5         Procedure for computation of Statutory Liquidity Ratio
             
3. Annex

1. Introduction

 This master circular covers instructions regarding the computation of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).

1.1  Cash Reserve Ratio

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 Scheduled Commercial Banks (SCBs) without any floor or ceiling rate.

1.2 Maintenance of CRR

At present, effective from the fortnight beginning January 17, 2009 the CRR is prescribed at 5.00 per cent of a bank's total of demand and time liabilities adjusted for the exemptions discussed in sections 1.11 and 1.12.

1.3 Incremental CRR

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 RBI 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 demand and time liabilities (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 banks.

1.4    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. As defined under Section 42 of RBI Act, 1934, liabilities of a bank may be towards 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 authorised 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 the RBI for necessary clarification.  

1.5    Demand Liabilities

Demand Liabilities include all liabilities which are payable on demand that 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.

1.6   Time Liabilities

Time Liabilities are those which are payable otherwise than on demand that 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)

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 the liabilities to the banking system, from the total of "Other Demand and Time Liabilities" (ODTL) 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 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.

1.8    Assets with the Banking System

Assets with the 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.

1.9   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.
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;

1. 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.
2. Net income tax provision.
3. Amount received from DICGC towards claims and held by banks pending adjustments thereof.
4. Amount received from ECGC by invoking the guarantee.
5. Amount received from insurance company on ad-hoc settlement of claims pending judgment of the Court.
6. Amount received from the Court Receiver.
7. The liabilities arising on account of utilization of limits under Bankers Acceptance Facility (BAF).
8. District Rural Development Agency (DRDA) subsidy of Rs.10,000/- kept in Subsidy Reserve Fund account in the name of Self Help Groups.
9. Subsidy released by NABARD under Investment Subsidy Scheme for Construction/Renovation/Expansion of Rural Godowns.
10. Net unrealized gain/loss arising from derivatives transaction under trading portfolio.
11. Income flows received in advance such as annual fees and other charges which are not refundable.
12. Bill rediscounted by a bank with eligible financial institutions as approved by RBI.
13. Provision not being a specific liability arising from contracting additional liability and created from profit and loss account.
14. 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 System" (item 1 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.  The interests accrued on these deposits are also exempted from reserve requirements.

  
1.12   Exempted Categories

Scheduled Commercial Banks are exempted from maintaining CRR on the following liabilities

1. Liabilities to the banking system in India as computed under Clause (d) of the Explanation to Section 42(1) of the RBI Act, 1934.
2. Credit balances in ACU (US$) Accounts.
3. Transactions in Collateralized Borrowing and Lending Obligation (CBLO) with Clearing Corporation of India Ltd. (CCIL).
4. Demand and Time Liabilities in respect of their Offshore Banking Units (OBUs).

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’. 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.

1.14      Procedure for Computation 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 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 Scheduled Commercial Banks 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 of India does not pay any interest on the CRR balances maintained by Scheduled Commercial Banks with effect from the fortnight beginning March 31, 2007.

1.17       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  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 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 Foreign Exchange Dealers Association of India's (FEDAI) noon mean rate on reporting Friday.

1.18   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 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 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.

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 Statutory Liquidity Ratio (SLR) for SCB 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 demand and time liabilities 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.

Reserve Bank has decided that all SCBs shall continue to maintain a uniform SLR of 24 per cent on their total net demand and time liabilities (NDTL) with effect from the fortnight beginning November 8, 2008, valued in accordance with the method of valuation specified by the Reserve Bank of India from time to time:

a)  in cash, or

b) in gold valued at a price not exceeding the current market price,      
                                or
c) in unencumbered investment in the following instruments which
will be referred to as “statutory liquidity ratio (SLR) securities":

(i) Dated securities issued up to September 8, 2009 as listed in the Annex to Notification DBOD.No.Ret.BC.40/12.02.001/2009-10 dated September 8, 2009

(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 Stabilisation Scheme;

(iv) State Development Loans (SDLs) of the State Governments issued from time to time under their market borrowing programme; and

(v) Any other instrument as may be notified by the Reserve Bank of 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 proposed cash management bill will be treated as Government of IndiaTreasury Bill and accordingly shall be treated as SLR securities

Explanations:

1.  "unencumbered investment" of a banking company shall include its investment in the aforesaid 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.
2. "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 thereunder, through an auction or any other method, as specified in the Notification issued in this regard.
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); and

(iii) Net balances in current accounts with other scheduled commercial banks in India.

2.1  Procedure for Computation of Statutory Liquidity Ratio (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 broadly similar to the procedure followed for CRR purpose. The liabilities mentioned under Section 1.11 will not form part of liabilities for the purpose of SLR also except item 1.11 (n). Thus, Scheduled Commercial Banks 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. The net
liabilities to the ' Banking System' as computed under clause   (d) of explanation to Section 18(1) of the B.R. Act, 1949 are exempted from maintenance of SLR.

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.

2.3 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 per cent per annum above the Bank Rate for the concerned days of default on the shortfall.

2.4    Return in Form VIII 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.

2.5  Temporary/Ad-hoc measures

The special 14-day term repo facility for banks through relaxation in the maintenance of SLR up to 1.5 per cent of their NDTL, to enable them to meet the liquidity requirements of mutual funds (MFs), non-banking financial companies (NBFCs) and housing finance companies (HFCs) has been extended up to March 31, 2010.

The forex liquidity to Indian Public and Private sector banks having foreign branches or subsidiaries are provided through forex swaps up to 3 months. Further for funding   the swaps, banks can borrow under the LAF for the corresponding tenor at prevailing repo rate. RBI will be prepared to consider any specific relaxation of SLR requirement for the purpose. The facility has been extended up to March 31, 2010.  

2.6    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.