Cash Reserve Ratio and Statutory
Liquidity Ratio
Introduction
RBI has
prescribed statutory returns, i.e. Form A Return (for CRR) under Section
42(2) of the RBI (RBI) Act, 1934 and Form VIII Return (for SLR) under Section
24 of the Banking Regulation Act, 1949 for monitoring the compliance of statutory
reserve requirements by scheduled commercial banks(SCB).
CASH RESERVE RATIO
In
terms of Section 42(1) of the RBI Act, 1934, RBI prescribes the CRR for SCBs
without any floor or ceiling rate for securing the monetary stability in the
country.
Maintenance
of CRR
Presently
CRR is prescribed at 4.00% of a bank's total of DTL.
Incremental
CRR
In
terms of Section 42(1A) of RBI Act, 1934, the SCBs are required to maintain, an
additional average daily balance, which shall not be less than the rate
specified by the RBI. At present no incremental CRR is required to be
maintained by the banks.
Computation
of DTL
The liabilities
of a bank may be in the form of demand or time deposits or borrowings or other
miscellaneous items of liabilities. These liabilities may be towards the
banking system or towards others. Banks are advised to approach the RBI in case
of any question as to whether any transaction would be regarded as reservable
liability.
Demand
Liabilities
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
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.
ODTL
include interest accrued on deposits, bills payable, unpaid dividends, suspense
account balances representing amounts due, net credit balances in the branch
adjustment account, any amounts due to the banking system other than deposits
or borrowing. If a bank cannot segregate the liabilities of the banking system,
from the total of ODTL, the entire ODTL may be shown as 'Other Demand and Time
Liabilities' and average CRR maintained on it.
Balance
in a blocked account pertaining to segregated 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, should also 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.
Interest accrued should be calculated for each reporting fortnight, so that the
bank’s liability in this regard is fairly reflected in the total NDTL of the
same fortnightly return.
Assets
with the Banking System
Ø Balances
with banks and notified financial institutions in current and other accounts,
Ø Loans
or deposits repayable at call or short notice of a fortnight or less and
Ø Loans
other than money at call and short notice made available to the banking system.
Ø Any
other amounts which cannot be classified under any of the above items.
Borrowings
from abroad by banks in India
Such
borrowings 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.
When a
bank accepts funds for remittance, it becomes a liability in its books. This
liability will extinguish only when the correspondent bank honours the drafts
issued by the accepting bank. Such liabilities should be reflected in the
accepting bank's books as liability under the head 'Liability to others in
India' and should be taken into account for computation of DTL for CRR/SLR
purpose.
The
amount received by correspondent banks will be shown as 'Liability to the
Banking System' and not as 'Liability to others'. This liability could be
netted off against the inter-bank assets.
Liabilities
not to be included for DTL/NDTL computation
a)
Paid up capital, reserves, credit balance
in the P&L Account, loan from RBI and refinance from Exim Bank, NHB,
NABARD, SIDBI;
b)
Net income tax provision;
c)
Amount received from DICGC towards
claims and held pending;
d)
Amount received from ECGC by invoking
the guarantee;
e)
Claim received from insurance company pending
judgement of the Court;
f) Amount received from the Court
Receiver;
g)
Liabilities arising on account of
utilization of limits under Bankers’ Acceptance Facility;
h)
DRDA subsidy of 10,000/- kept in Subsidy
Reserve Fund account 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;
l) Bill
rediscounted by a bank with eligible financial institutions as approved by RBI;
Exempted
Categories
i. Liabilities
as computed under clause (d) of explanation to Sec 42(1) of RBI Act,;
ii.
Credit balances in ACU (US$) Accounts;
and
iii. Demand
and Time Liabilities in respect of their Offshore Banking Units (OBU).
iv. Eligible
amount of incremental FCNR (B) and NRE deposits of maturities of three years
and above from the base date of July 26, 2013, and outstanding as on March 7,
2014, till their maturities/pre-mature withdrawals, and
v.
Minimum of Eligible Credit and
outstanding Long term Bonds to finance Infrastructure Loans and affordable
housing loans,
Loans
out of FCNR (B) Deposits and Inter-Bank Foreign Currency (IBFC) Deposits
Such Loans
should be included as part of bank credit while reporting in Form ’A’ Return.
For the purpose of reporting, foreign currency in USD, GBP, JPY and Euro should
be converted into INR at RBI Reference Rates. Other currencies should first be
converted into USD at New York Closing Rate as on the day end of the Reporting
Friday, and then use RBI Reference Rate for the same day to convert it into
INR.
Procedure
for Computation of CRR
A lag
of one fortnight in the maintenance of stipulated CRR was introduced with
effect from 6/11/99.
Maintenance
of CRR on Daily Basis
All
SCBs are required to maintain minimum CRR up to 95 % of the average daily
required reserves on all days of the fortnight with effect from September 21,
2013.
No
Interest Payment on Eligible Cash Balances maintained by SCBs with RBI under
CRR
RBI
does not pay any interest on the CRR balances with effect from March 31, 2007.
Fortnightly
Return in Form A (CRR)
Under
Section 42(2) of the RBI Act, 1934, all SCBs must submit a provisional Return
in Form 'A' within 7 days and the Final return within 20 days from the expiry
of the relevant fortnight. With effect from October 9, 1998, SCBs in India are
required to submit a Memorandum to Form 'A' Return giving details about paid-up
capital, reserves, time deposits comprising short-term (one year or less) and
long-term (more than one year), certificates of deposits, NDTL, total CRR
requirement, etc.
A return
showing all foreign currency assets and liabilities 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 the primary market and subscriptions through private placement.
The
average of the minimum balances maintained in each month during the half year shall
be treated as the amount representing the "time liability” portion of the
savings bank deposits. The difference of this amount and the average
of the actual balances would represent the "demand liability”
DL and
TL so obtained shall be applied for all reporting fortnights during the next
half year.
Penalties
Penal
interest is charged as under in cases of default in maintenance of CRR by SCBs:
(i)
In case of default in maintenance of CRR
on daily basis, penal interest will be recovered at 3% per annum over Bank Rate
on the amount falling short on that day. If the shortfall continues on the next
succeeding days, penal interest will be recovered at 5% per annum over 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 RBI Act, 1934.
SCBs should
furnish the date, amount, percentage, reason for default and also action taken
to avoid recurrence of such default.
Statutory Liquidity Ratio (SLR)
As per
Section 24 of the Banking Regulation Act, 1949, RBI can prescribe the SLR for
SCBs in specified assets, the value of which shall not be less than 40 % of its
total DTL in India as on the last Friday of the second preceding fortnight.
SCBs
can participate in the Marginal Standing Facility Scheme of RBI, wherein the
eligible entities may borrow up to 2% of their NDTL outstanding at the end of
the second preceding fortnight. 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 % 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.
Within
the SLR requirement, Government securities can be reckoned as Level 1 High
Quality Liquid Assets (HQLAs) for the purpose of computing Liquidity Coverage
Ratio (LCR) of banks. In addition to this, banks can reckon up to another 5 %
of their NDTL within the SLR requirement as level 1 HQLA.
SCB shall maintain assets valued not less than 21.5 % of the
total NDTL as on the last Friday of the second preceding fortnight. Such assets
will include:
(a) Cash
or
(b) in
Gold valued at
a price not
exceeding the current
market price, or
(c)
Investment in the following instruments, referred to as "SLR
securities":
(i)
Dated securities issued up to May 06,
2011;
(ii)
Treasury Bills of the Government of
India;
(iii)
Dated securities of the Government of
India issued under the market borrowing programme and the Market Stabilization
Scheme;
(iv)
State Development Loans (SDLs) of the
State Governments issued under the market borrowing programme; and
(v)
Any other instrument as may be notified
by the RBI.
Such
securities, if acquired under LAF, shall not be treated as an eligible asset
for this purpose.
Explanation:
1. "Market
borrowing programme" shall mean the rupee loans raised by the Government
of India and the State Governments from the public and managed by the RBI
through the issue of marketable securities, through an auction or any other
method.
2. Encumbered
SLR securities shall not be included for the purpose except:
(i)
Securities lodged with another
institution for an advance, against which no amount has been drawn so far; and,
(ii)
Securities offered as collateral to the RBI
for availing liquidity assistance from Marginal Standing Facility up to 2% of NDTL
in India carved out of the required SLR portfolio.
3. The
following shall be deemed to be cash maintained in India:
(i) The
deposit required to be made with RBI under Sec 11(2) of the BR Act, 1949 by a
banking company incorporated outside India;
(iii) Net
balance in current accounts with other SCBs in India.
Note:
- 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 by RBI at the time of issuing such securities; and,
(ii)
An updated and current list of the SLR
securities will be posted on the RBI'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 shall be treated as SLR security.
Procedure
for Computation of SLR
The
procedure to compute total NDTL for the purpose of SLR is broadly similar to
the procedure followed for CRR. Banks should 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.
Classification
and Valuation of Approved Securities for SLR
Banks
may be guided by the instructions contained in our Master Circular on
Prudential Norms for Classification, Valuation and Operation of Investment
Portfolio by banks.
In case
of default, Banks will be liable to pay penal interest at 3% per annum over
Bank Rate on the shortfall for that day and if the default continues, the penal
interest may be increased to 5% per annum over Bank Rate for the concerned days
of default.
Return
in Form VIII (SLR)
i)
Banks should submit 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, to RBI before 20th of every month,.
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)
excess cash balances maintained with RBI, and (c) mode of valuation of
securities.
Correctness
of computation of DTL to be certified by Statutory Auditors
The
Statutory Auditors should verify and certify that all items of outside
liabilities 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.
Based on the
Master Circular of 1/7/15.
RBI subsequently allowed G SEC received from RBI when bank lent to RBI under Reverse LAF for SLR purpose and valuation of this LAF securites shall be as per valuation norms. Since this LAF securities are not accounted as Investment in the books of the banks, it will be highly desirable to enlighten what shall be SLR value of these securities (Is it the LAF Amount or Market Value or Face value of these Securities)
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