RBI Announces Reduction in the CRR

Monetary/Liquidity Measures

It has been decided to:

  • reduce the cash reserve ratio (CRR) of scheduled banks by 75 basis points from 5.5 per cent to 4.75 per cent of their net demand and time liabilities (NDTL) effective the fortnight beginning March 10, 2012.

This reduction will inject around `480 billion of primary liquidity into the banking system.

In order to mitigate tight liquidity conditions, the cash reserve ratio was reduced by 50 basis points in the Third Quarter Review (TQR) of January 2012, injecting primary liquidity of `315 billion into the banking system. The Reserve Bank also continued with the open market operations (OMOs), injecting primary liquidity of over `1,245 billion this financial year so far, of which `528 billion was injected after the TQR.

Despite these measures, the liquidity deficit has remained large on account of both structural and frictional factors. This was reflected in the net average borrowing under the Reserve Bank’s liquidity adjustment facility (LAF) rising from an average of `1,292 billion in January 2012 to `1,405 billion in February. Net injection of liquidity through LAF rose to a peak of `1,917 billion on March 1, 2012, though subsequently it declined to `1,273 billion on March 7, 2012.

Further, the liquidity deficit is expected to increase significantly during the second week of March due to advance tax outflows and the usual frontloading of cash balances by banks with the Reserve Bank. Thus, the overall deficit in the system persists above the comfort level of the Reserve Bank. Accordingly, it has been decided to inject permanent primary liquidity into the system by reducing the CRR so as to ensure smooth flow of credit to productive sectors of the economy.

As already announced, the Reserve Bank will provide its assessment of the macroeconomic situation in its Mid-Quarter Review to be published on March 15, 2012.

Jaya Mohanty
Director

Press Release : 2011-2012/1441

———————————————-

RELATED NOTIFICATIONS ISSUED TO The Chief Executive Officers of All Scheduled Primary (Urban) Co-operative Banks and to All Scheduled Commercial Banks (Excluding Regional Rural Banks) are as follows:-

————————————————

RBI/2011-12/435
UBD.BPD. (SCB). Cir.No.3/12.03.000/ 2011-12

March 9, 2012

The Chief Executive Officers of
All Scheduled Primary (Urban) Co-operative Banks

Madam / Dear Sir,

Section 42(1) of the Reserve Bank of India Act, 1934 – Maintenance of CRR

Please refer to our Circular UBD (PCB).CIR.No.2/12.03.000/2011-12 dated January 25, 2012 on the captioned subject.

2.  On review of the current and evolving liquidity conditions as set out in the Reserve Bank’s Press Release 2011-2012/1441 dated March 9, 2012, it has been decided to reduce the Cash Reserve Ratio (CRR) of Scheduled Primary (Urban) Co-operative Banks by 75 basis points from 5.50 per cent to 4.75 per cent of their Net Demand and Time Liabilities (NDTL) with effect from the fortnight beginning March 10, 2012.

3.  A copy of the relative notification UBD.BPD. (SCB).DIR.No.7/12.03.000/ 2011-12 dated March 09, 2012 is enclosed.

4.   Please acknowledge receipt.

Yours faithfully,

(L.M. Kamble)
General Manager-in-Charge
Encl: 1


UBD.BPD. (SCB). DIR.No.7/12.03.000/ 2011-12

March 9, 2012

Notification

In exercise of the powers conferred under the sub-section (1) of Section 42 of the Reserve Bank of India Act, 1934, and in partial modification of the earlier notification UBD.(PCB).DIR.No.6/12.03.000/2011-12 dated January 25, 2012, the Reserve Bank of India hereby notifies that the average Cash Reserve Ratio (CRR) required to be maintained by every Scheduled Primary (Urban) Co-operative Bank shall be 4.75 per cent of its net demand and time liabilities, from the fortnight beginning March 10, 2012.

(S. Karuppasamy)
Executive Director

————————————————

RBI/2011-12/434
Ref: DBOD.No.Ret.BC.86 /12.01.001/2011-12

March 09, 2012

All Scheduled Commercial Banks
(Excluding Regional Rural Banks)

Dear Sir,

Section 42(1) of the Reserve Bank of India Act, 1934 – Maintenance of CRR

Please refer to our Circular DBOD.No.Ret.BC.74/12.01.001/2011-12 dated January 24, 2012 on the captioned subject.

2.  On review of the current and evolving liquidity conditions as set out in the Reserve Bank’s Press Release 2011-2012/1441 dated March 9, 2012, it has been decided to reduce the Cash Reserve Ratio (CRR) of Scheduled Commercial Banks by 75 basis points from 5.50 per cent to 4.75 per cent of their Net Demand and Time Liabilities (NDTL) with effect from the fortnight beginning March 10, 2012.

3.  A copy of the relative notification DBOD.No.Ret.BC.85/12.01.001/2011-12 dated March 09, 2012 is enclosed.

4.   Please acknowledge receipt.

Yours faithfully

 (P. R. Ravi Mohan)
Chief General Manager

Encls: one


DBOD.No.Ret.BC.85 /12.01.001/2011-12

March 09, 2012

Notification

In exercise of the powers conferred under the sub-section (1) of Section 42 of the Reserve Bank of India Act, 1934 and in partial modification of the earlier notification DBOD.No. Ret.BC.73/12.01.001/2011-12 dated January 24, 2012, the Reserve Bank of India hereby notifies that the average Cash Reserve Ratio (CRR) required to be maintained by every Scheduled Commercial Bank shall be 4.75 per cent of its net demand and time liabilities from the fortnight beginning March 10, 2012.

(G. Padmanabhan)
Executive Director

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Posted Under

Category : Fema / RBI (3547)
Type : Circulars (7876) Notifications/Circulars (32585)
Tags : RBI Notifications (2012)

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