Banks Request RBI To Advance Time For Reporting CRR Status
Banks have approached the Reserve Bank of India (RBI) with a request to shift the reporting cut-off time for Cash Reserve Ratio (CRR) from 11:59 pm to approximately 6 pm or 7 pm. This move, aimed at encouraging high-street lenders to increase lending in the call money market, may require the central bank to adjust the timing for computing CRR requirements.
By narrowing the reporting window, banks hope to avoid parking a significant portion of funds at the RBI's Standing Deposit Facility (SDF) as a precautionary measure in light of 24x7 banking obligations. This adjustment could potentially liberate funds for lending in the interbank call money market, creating a more balanced liquidity distribution and mitigating sporadic volatility in the cost of funds tied to systemic liquidity fluctuations.
According to media reports, banks want the CRR cut-off timing to be advanced. Under the current system, banks must maintain a satisfactory buffer until midnight to ensure that the reserve requirement is met. What is happening now is that a bank can be faced with a sudden outflow because of the pickup in 24x7 banking. So, banks are keeping a protective buffer at the SDF instead of deploying funds in the call market.
The interbank call money market serves as an uncollateralised funding avenue for banks to fulfill reserve requirements and address other financing needs. Its fluctuations have a direct impact on the broader economy's cost of funds.
Currently, while the interbank call money market closes at 5 pm, transactions in collateralised money market routes like tri-party repos and interbank repos conclude at least two hours earlier. The situation, however, is multifaceted. "The matter is a complicated one. One vertical of a bank may want an advanced CRR cutoff time, but another one, for instance, the currency management vertical, may face complications," media agencies reported. Additionally, some banks, based on their internal limits, may be reluctant to increase exposure to the uncollateralised call money market.
Earlier this week, RBI Governor Shaktikanta Das encouraged banks to evaluate their actual liquidity requirements over the reserve maintenance cycle and actively lend out surplus funds in the call market rather than passively deploying cash at the SDF, where rates are relatively less attractive.
