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RBI to review daily cash reserve ratio

Mumbai, Nov. 30: The Reserve Bank (RBI) today said that it may consider lowering banks’ minimum daily cash reserve ratio (CRR) maintenance requirement which was raised to 80 per cent from 50 per cent in the mid-term review of the monetary and credit policy in October.

The decision was taken at a meeting between RBI deputy governor Rakesh Mohan and bank chairmen and treasury heads to assess the impact of the first stage of prudential limits on borrowing and lending operations of commercial banks in call/notice money market implemented from October 5.

“Among other issues, bankers are concerned that the stipulated limit of 80 per cent of required CRR amount to be met on a daily basis since November 16, could lead to a certain level of inflexibility in their funds management. The deputy governor agreed to examine this issue,” RBI said today. The CRR is currently pegged at 4.75 per cent.

The meeting also agreed on the implementation of the second stage with effect from the fortnight beginning December 14. Earlier, in the monetary policy, RBI governor Bimal Jalan had stipulated that banks will have to maintain a minimum of 80 per cent of the required CRR amount on a daily basis during a fortnight with effect from the fortnight beginning November 16. The minimum level would be applicable for all the days in a reporting fortnight. This was done to modulate bank reserves in the inter-bank market and minimise the volatility in CRR maintenance.

RBI has been defining the prudent limits on exposure of banks to the call money market so as to reduce the chronic reliance of banks on call market. Prudential limits on the exposure of commercial banks to call/notice money market were stipulated in two stages.

The first stage said that from the fortnight beginning October 5, lending of scheduled commercial banks in the call/notice money market, on a fortnightly average basis, should not exceed 50 per cent of their owned funds as at the end of March of the previous financial year. The second stage stipulated that with effect from the fortnight beginning December 14, lending of scheduled commercial banks, on a fortnightly average basis, should not exceed 25 per cent of their owned funds.

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