RBI announces 100 bps reduction in Cash Reserve Ratio

Reduces requirement of minimum daily CRR balance maintenance from 90% to 80%

Liquidity in the banking system remains ample, as reflected in absorption of surpluses from the banking system under reverse repo operations of the LAF of the order of Rs 2.86 lakh crore on a daily average basis during March 1-25, 2020. It is observed, however, that the distribution of this liquidity is highly asymmetrical across the financial system, and starkly so within the banking system.

As a one-time measure to help banks tide over the disruption caused by COVID-19, it has been decided to reduce the cash reserve ratio (CRR) of all banks by 100 basis points to 3.0% of net demand and time liabilities (NDTL) with effect from the reporting fortnight beginning 28 March 2020.

This reduction in the CRR would release primary liquidity of about Rs 1,37,000 crore uniformly across the banking system in proportion to liabilities of constituents rather than in relation to holdings of excess SLR. This dispensation will be available for a period of one year ending on 26 March 2021.

Furthermore, taking cognisance of hardships faced by banks in terms of social distancing of staff and consequent strains on reporting requirements, it has been decided to reduce the requirement of minimum daily CRR balance maintenance from 90% to 80% effective from the first day of the reporting fortnight beginning 28 March 2020. This is a one-time dispensation available up to 26 June 2020.

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