Banks hope RBI will relax weekend CRR norms

Currently, banks have to adhere to a requirement of 95% of CRR daily (including on Saturdays) and 100% on a fortnightly basis

In its next bi-monthly monetary policy review, due on coming Tuesday, the Reserve Bank of India (RBI) might heed banks’ demand to relax the requirement of maintaining 95 per cent of Cash Reserve Ratio (CRR), which stands at four per cent currently, on Saturdays.

Currently, banks have to adhere to a requirement of 95 per cent of CRR daily (including on Saturdays) and 100 per cent on a fortnightly basis. Bankers say this is difficult, as RBI does not conduct its Liquidity Adjustment Facility (LAF) on Saturdays.

CRR is the proportion of total deposits a bank has to keep with RBI as cash. It is currently four per cent of a bank’s net demand and time liabilities. This does not earn them any interest.

Arundhati Bhattacharya, chief of the country’s largest lender, State Bank of India, said bankers had asked for several operational issues to be addressed. “For instance, we have asked for mandated CRR to be brought down from 95 per cent on Saturdays. We had also asked for a repo window on Saturdays. This is because the NEFT (National Electronic Fund Transfers) and RTGS (Real Time Gross Settlement) transactions happen on Saturday but there is no repo facility on that day. Having a low CRR will help us tackle the issue,” she said.

Earlier, banks were allowed to maintain CRR at 70 per cent on a daily basis. In July 2013, when the rupee-dollar exchange rate turned volatile, RBI had raised this requirement to 99 per cent, among other liquidity tightening measures, to curb speculation in the currency market. After the exchange rate stabilised, these measures were rolled back but the CRR requirement was kept at 95 per cent.

It is understood that RBI is not willing to conduct LAF on Saturdays. “RBI doesn’t want money market operations on Saturdays. On that day, since money market operations are not there, it becomes difficult for us to manage a CRR requirement of 95 per cent. Then, we suggested in such a case even RTGS and NEFT should not be there on Saturdays. But RBI believes these should,” said a senior official of a large public sector bank (PSB).

Bankers have suggested to the central bank that any shortfall in the 95 per cent CRR requirement on Saturdays be covered by them on the next working day, after Sunday. “RBI should allow this and we are hopeful that this announcement will come in the monetary policy review,” said a treasury official of a PSB.