Banks fail to meet RBI mandate on CRR multiple times

Banks fail to meet RBI mandate on CRR multiple times

MUMBAI: In an unusual occurrence, the average fortnightly cash balances of banks kept with the Reserve Bank of India (RBI) fell short of the central bank’s mandated cash reserve requirement (CRR) 15 times in the past year alone, an analysis of daily data released by the banking regulator showed.

The shortfall in the fortnightly CRR, one of the key regulatory reserve requirements set out by the RBI, could be broadly attributed to two factors, according to people familiar with the matter.

“The RBI had given the dispensation on CRR maintenance in 2022 to at least one private bank which was facing some issues, but that dispensation does not exist anymore. Another factor is that there are issues with how the CRR maintenance data is reported. That is contributing to the shortfall and the RBI will rectify that issue,” said one of the persons, who did not wish to be identified.

ET’s queries emailed to the RBI did not elicit a response till press time.

Daily data released by the RBI on scheduled commercial banks’ cash reserves showed that from the fortnight ended May 19, 2023, to the fortnight ended April 19, 2024, there were 15 instances of the average fortnightly cash maintained by banks falling short of the requirement.

Data going back to May 2021 showed around 30 more instances of a shortfall. The quantum of shortfall ranged from ₹44 crore in the fortnight ended May 19, 2023, to larger sums such as ₹6,820 crore in the fortnight ended August 11, 2023.

According to Section 42 (1) of the Reserve Bank of India Act, 1934, the RBI prescribes the CRR for scheduled commercial banks. Currently, the CRR is at 4.50% of net demand and time liabilities, which is a proxy for deposits. This means that banks must set aside that portion with the RBI as a prudential measure. The CRR can also be used to influence monetary policy by the central bank, as changes in the reserve requirement have an impact on banking system liquidity.

“Every scheduled bank shall maintain in India with the Reserve Bank, an average daily balance, the amount of which shall not be less than 4.50% of the bank’s total NDTL (net demand and time liabilities) in India as on the last Friday of the second preceding fortnight,” said the RBI’s Master Direction on CRR and Statutory Liquidity Ratio, which was most recently updated in September 2023.

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