Cash Reserve Ratio in detail
Cash Reserve Ratio (CRR) is the mandatory reserves to be maintained with Reserve Bank of India. Every
scheduled Bank is required to keep certain percentage of their demand and time liabilities, as cash balances with
the Reserve Bank of India from time to time as per Section 42 of the Reserve Bank of India Act,. There is no
maximum ceiling or floor rate in respect of CRR. The non-scheduled banks are required to maintain the cash
reserve as per Section 18 of the Banking Regulation Act.
Computation of DTL:
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
Demand Liabilities of a bank are liabilities which are payable on demand. Some of the important items are:
(ii) demand liabilities portion of savings bank deposits
(iii) margins held against letters of credit/guarantees
(iv) balances in overdue fixed deposits
(v) cash certificates and cumulative/recurring deposits
(vi) outstanding Telegraphic Transfers (TTs), Mail Transfers (MTs), Demand Drafts (DDs)
(vii) unclaimed deposits
(viii) credit balances in the Cash Credit account and (ix) deposits held as security for advances which are payable
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:
(i) fixed deposits
(ii) cash certificates
(iii) 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.
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
(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.
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’.
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.
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
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. It should be shown as ‘ Liability to others in India’ and the same should also be taken into
account for computation of DTL for CRR/SLR purpose.
Liabilities not to be included for DTL/NDTL computation:
The following items 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) Other items as approved by RBI
SCBs are exempted from maintaining CRR on the following liabilities:
– Liabilities to the banking system in India as computed under Clause (d) of the explanation to Section
42(1) of the RBI Act, 1934;
– Demand and Time Liabilities in respect of their Offshore Banking Units (OBU) and
– 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.
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 is provided.
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 ( Reserve Bank of India has
increased the requirement of minimum daily CRR balance maintenance to 99 per cent effective from the first day
of the fortnight beginning July 27, 2013).
As present, no Interest is paid on Eligible Cash Balances maintained by SCBs with RBI under CRR:
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 and the final Form ‘A’ return is required to be
submitted to RBI within 20 days from expiry of the relevant fortnight.
As regards the SB accounts, the 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. The average of the minimum balances maintained in each of the month during the
half year period should 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 should be applied for arriving at demand and time liabilities components of savings bank deposits for all reporting fortnights during the next half year.
Penal interest will be charged as under in cases of default in maintenance of CRR by SCBs as per the directives
of the Reserve Bank of India.