RBI Directive: Additional Balance Requirements for Banks

Reserve Bank of India (RBI) issued a significant notification on 8th September 2023, under Section 42 of the RBI Act, 1934. This directive modifies a previous notification and imposes additional average daily balance requirements on Scheduled Commercial Banks, Regional Rural Banks, Scheduled Primary (Urban) Co-operative Banks, and Scheduled State Co-operative Banks. In this article, we will delve into the details of this directive and its implications on the banking sector.

1. Additional Balance Requirements: RBI mandates that these banks must maintain an extra average daily balance over and above what is required under Section 42(1) during specific fortnights. The directive categorizes these requirements as follows:

• September 09-22, 2023: Banks must maintain an additional average daily balance, equivalent to at least 7.5% of the increase in net demand and time liabilities between May 19, 2023, and July 28, 2023.
• September 23, 2023 – October 06, 2023: Banks are required to maintain an additional average daily balance of not less than 5.0% of the increase in net demand and time liabilities between May 19, 2023, and July 28, 2023.
• From October 07, 2023: No additional balance requirement is specified.

2. Objective: The RBI directive aims to enhance liquidity management and strengthen the financial stability of the banking sector, particularly during specific periods of economic activity.

Conclusion: The RBI’s latest directive, issued on 8th September 2023, imposes additional average daily balance requirements on various categories of banks in India. This measure is intended to improve liquidity management and ensure the financial stability of these banks during specific fortnights. It is essential for the affected banks to adhere to these requirements to comply with RBI regulations effectively. As the directive comes into effect, it will be closely monitored by the banking industry and financial experts for its impact on the overall banking landscape in India.

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RESERVE BANK OF INDIA
NOTIFICATION

Mumbai, the 8th September, 2023

DOR.RET.REC.35/12.01.001/2023-24.—In exercise of the powers conferred by sub-section (1A) of Section 42 of the Reserve Bank of India Act, 1934 and in modification of the earlier notification DOR.RET.REC.30/12.01.001/2023-24 dated August 10, 2023, the Reserve Bank of India hereby directs that all Scheduled Commercial Banks / Regional Rural Banks / all Scheduled Primary (Urban) Co-operative Banks / all Scheduled State Co-operative Banks, shall maintain with the Reserve Bank of India, an additional average daily balance over and above the average daily balance required to be maintained under sub-section (1) of Section 42 during the following fortnights as under:

JAYANT KUMAR, Executive Director

[ADVT.-III/4/Exty./460/2023-24]