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India's RBI cuts

cash reserve ratio

BOMBAY: The Reserve Bank of India in its credit policy for the first half of 1996/97 (April/March) on Wednesday said it cut the cash reserve ratio (CRR) by one percentage point to 13.0 percent.

The CRR cut would be implemented in two phases of 0.5 percent each, RBI said. CRR on net demand and time liabilities would be reduced to 13.5 percent effective April 27 and to 13.0 percent effective May 11.

The reduction in CRR would augment the lendable resources of banks by about 38 billion rupees and also significantly improve the profitability of banks," RBI said.

"It is pertinent to note that the effective CRR for the system has been brought down from 15.7 percent at the end of March 1995 to 13.8 percent at the end of March 1996 and with the measures announced today, the effective CRR for the system would be a little over 12.5 percent," it said.

With effect from the fortnight beginning April 13, 1996, liabilities under the NRE (non-resident external - deposits by expatriate Indian) accounts, would be subject to zero CRR requirements, RBI said.

This change is in line with similar measures already announced in respect of foreign currency non-resident (banks) scheme and non-resident (non-repatriable) rupee deposit scheme.

"This measure would augment the lendable resources of banks by 14 billion rupees. Banks would, however, have to maintain at least the statutory minimum three percent CRR on their entire net demand and time liabilities," RBI said.

With effect from the fortnight beginning April 13, 1996, the statutory liquidity ratio (SLR) on outstanding liabilities under the NRE accounts scheme would be reduced to 25 percent from 30 percent, RBI said in its policy announcement.

"This measure would reduce the SLR prescription of banks by 6.70 billion rupees," it said.

"With a veiw to bring about an alignment of the maturity structure of NRE term deposits with that on domestic term deposits, interest rates on NRE term deposits of over two years are being freed," RBI said.

RBI said it was withdrawing the existing restriction that units of money market mutual funds (MMMFs) could be issued only to individuals. These would now be available to corporates and others on par with all other mutual funds that could invest in these schemes, RBI said.

RBI said it asked banks to mark to market 50 percent of their investments in approved securities for 1996/97. Banks were required to mark to market at least 40 percent of their investments in approved securities in 1995/96.

RBI also asked banks to reduce the cash credit component of the maximum permissible bank finance (MPBF) to 40 percent from 60 percent for borrowers with assessed MPBF of 200 million or above. For borrowers with assessed MPBF of 100 milliion to less than 200 million, the cash credit component would be 60 percent and loan component 40 percent, it said.

"The process of bifurcation into loan and cash credit components in both the above categories of borrowers should be completed on or before June 29, 1996 or the next quarterly review of the borrowal account, whichever is earlier," it said.