Introduction: The Reserve Bank of India (RBI) has issued a significant directive impacting the banking sector. As of August 12, 2023, all Scheduled Commercial Banks, Regional Rural Banks, Scheduled Primary (Urban) Co-operative Banks, and Scheduled State Co-operative Banks are required to maintain an additional average daily balance with the RBI. This directive aims to enhance the financial stability of these institutions and ensure their ability to meet the growing demand for funds.
Directive Details: The RBI directive specifies that banks must maintain an extra average daily balance over and above what is typically required under Section 42 of the Reserve Bank of India Act, 1934.
Minimum Requirement: The amount of the additional average daily balance should not be less than 10 percent of the increase in net demand and time liabilities between May 19, 2023, and July 28, 2023. This requirement is a significant departure from previous regulations and will have implications for the liquidity management strategies of banks.
Impact on Banks: This directive will have far-reaching consequences for the banking industry. Banks will need to reassess their balance sheets and ensure compliance with the new requirements. It may lead to changes in lending practices, investment strategies, and the overall financial health of these institutions.
Financial Stability: The RBI’s decision to enforce this additional average daily balance is aimed at enhancing the financial stability of banks. It provides a buffer to cover potential financial shocks and ensures that banks are well-prepared to meet the demands of their customers.
Implementation Challenges: Banks may face initial challenges in implementing this directive, as it requires adjustments to their existing financial plans and resources. Compliance will demand careful planning and execution.
Conclusion: The RBI’s directive to require banks to maintain an additional average daily balance is a significant move to safeguard the financial stability of the banking sector. It comes into effect from August 12, 2023, and will require banks to adapt their financial strategies to meet the new requirements. This development underscores the RBI’s commitment to ensuring the resilience and stability of India’s financial institutions in the face of evolving economic challenges.
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RESERVE BANK OF INDIA
NOTIFICATION
Mumbai, the 10th August, 2023
DOR.RET.REC.30/12.01.001/2023-24.—In exercise of the powers conferred by sub-section (1A) of Section 42 of the Reserve Bank of India Act, 1934, 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, with effect from the fortnight beginning August 12, 2023:
(i) an additional average daily balance over and above the average daily balance required to be maintained under subsection (1) of Section 42; and
(ii) that the amount of such additional average daily balance shall not be less than 10 per cent of the increase in net demand and time liabilities between May 19, 2023 and July 28, 2023.
JAYANT KUMAR DASH, Executive Director
[ADVT.-III/4/Exty./418/2023-24]
