CASH/LIQUIDITY

CASH/LIQUIDITY
MANAGEMENT IN BANKS
MANAGEMENT IN BANKS
Presented by
Dr.S.C.Bihari Dr.S.C.Bihari
I B S,HYDERABAD
PURPOSE, MONITORING OF CRR AND SLR
These two monetary policy measures of the RBI These two monetary policy measures of the RBI
together try to ensure adequate liquidity and a together try to ensure adequate liquidity and a
balanced monetary position in the system. balanced monetary position in the system.
With a view to monitoring compliance of With a view to monitoring compliance of
maintenance of statutory reserve requirements maintenance of statutory reserve requirements viz viz. .
CRR and SLR by the SCBs, the Reserve Bank of CRR and SLR by the SCBs, the Reserve Bank of
India has prescribed statutory returns India has prescribed statutory returns i.e i.e. Form A . Form A
return (for CRR) under Section 42 (2) of the RBI return (for CRR) under Section 42 (2) of the RBI
Act, 1934 and Form VIII return (for SLR) under Act, 1934 and Form VIII return (for SLR) under
Section 24 of the Banking Regulation Act, 1949. Section 24 of the Banking Regulation Act, 1949.
WHAT IS CRR
WHAT IS CRR
CRR or CASH RESERVE RATIO is the average CRR or CASH RESERVE RATIO is the average
daily balance with the RBI, the percentage of daily balance with the RBI, the percentage of
CRR will be specified by RBI from time to time CRR will be specified by RBI from time to time
on Net Demand and Time Liabilities (NDTL) on Net Demand and Time Liabilities (NDTL)
In simple terms, it is the cash that banks deposit In simple terms, it is the cash that banks deposit
with the RBI as a proportion of their deposits. with the RBI as a proportion of their deposits.
CRR is more effective in bringing about changes CRR is more effective in bringing about changes
in the monetary positions since it is in the form of in the monetary positions since it is in the form of
cash. cash.
What is SLR ?
What is SLR ?
In addition to the cash reserve ratio, the banks In addition to the cash reserve ratio, the banks
are required to maintain specified reserves in the are required to maintain specified reserves in the
form of government securities, specified bonds and form of government securities, specified bonds and
approved securities. approved securities.
These constitute the STATUTORY LIQUIDITY RATIO These constitute the STATUTORY LIQUIDITY RATIO
OR SLR. The aim of SLR is two OR SLR. The aim of SLR is two- -fold: fold:
(1) It provides profitability to the banks while ensuring (1) It provides profitability to the banks while ensuring
liquidity since investments in government securities form a liquidity since investments in government securities form a
part of their reserves. part of their reserves.
(2) The statutory investment to be made in approved (2) The statutory investment to be made in approved
government securities ease the government government securities ease the government s borrowing s borrowing
programme. programme.
Demand Liabilities Demand Liabilities

Current deposits Current deposits
Demand Liabilities portion of savings Bank Demand Liabilities portion of savings Bank
Deposits Deposits
Margins held against Letters of Credit/Guarantees Margins held against Letters of Credit/Guarantees
Balances in overdue Fixed/Cumulative /Recurring Balances in overdue Fixed/Cumulative /Recurring
Deposits, Cash Certificates Deposits, Cash Certificates
Outstanding Telegraphic Transfers ( Outstanding Telegraphic Transfers (TTs),Mail TTs),Mail
Transfers ( Transfers (MTs MTs), Demand ), Demand Drafts(DDs Drafts(DDs) )
Unclaimed Deposits Unclaimed Deposits
Credit balances in the Cash Credit Account Credit balances in the Cash Credit Account
Deposits held as security for advances which are Deposits held as security for advances which are
payable on demand. payable on demand.
TERM LIABILITIES
TERM LIABILITIES
Fixed/Cumulative /Recurring Deposits Fixed/Cumulative /Recurring Deposits
Cash Certificates Cash Certificates
Time Liabilities Portion of Savings Bank Time Liabilities Portion of Savings Bank
Deposits Deposits
Staff Security Deposits Staff Security Deposits
Margins held against Letters of Credits, if not Margins held against Letters of Credits, if not
payable on demand payable on demand
Deposits held as Securities for Advances, and Deposits held as Securities for Advances, and
India Development Bonds India Development Bonds
Other Liabilities
Other Liabilities

Participation Certificates issued to other

Participation Certificates issued to other
banks
banks

Net credit balance in the interbranch

Net credit balance in the interbranch
adjustment account
adjustment account

Outstanding balances in blocked

Outstanding balances in blocked
accounts
accounts

Margin money on bills purchased/

Margin money on bills purchased/
discounted,
discounted,

Gold borrowed from abroad by banks

Gold borrowed from abroad by banks
Paid up capital and reserve
Loans taken from RBI, NABARD etc
Aggregate liabilities to
SBI and Subsidiaries
RRBs
A banking company
A cooperative bank
Excess provision for IT
Amount received from DICGC, Court
Receiver, ECGC
LIABILITIES NOT TO BE INCLUDED FOR LIABILITIES NOT TO BE INCLUDED FOR
NDTL COMPUTATION NDTL COMPUTATION
CRR
CRR

As per Section 42(1) of The RBI Act 1934

As per Section 42(1) of The RBI Act 1934

Average daily balance with RBI

Average daily balance with RBI

Minimum 4% at present, changeable by

Minimum 4% at present, changeable by
RBI
RBI

Macro economic condition and money

Macro economic condition and money
supply decide the changes by RBI from
supply decide the changes by RBI from
time to time
time to time
Constituents of Cash Reserve
Constituents of Cash Reserve
Deposits with RBI
Cash balances with currency chests
For fortnight
Maintenance of CRR requirement on a
daily basis which is presently 70 per cent
of the total CRR requirement (99 PER
CENT FROM 27-7-2013 AS NOTIFIED
BY RBI AND SUBSEQUENTLY CHANGED TO
95 PER CENT)
SLR
SLR
Statutory: Statutory:
Section 24(2A) BR Act 1949 Section 24(2A) BR Act 1949
Banking Laws (Amendment) Act 1983 Banking Laws (Amendment) Act 1983
Section 18 BR Act Section 18 BR Act
Reserves in CASH Reserves in CASH
Gold at present market price Gold at present market price
Approved securities Approved securities
Current account balances maintained with Current account balances maintained with
PSBs PSBs
SLR contd.
SLR contd.

22.5% of NDTL as on last Friday of 2

22.5% of NDTL as on last Friday of 2
nd nd
preceding fortnight
preceding fortnight

Range upto 40%

Range upto 40%

Objectives:
Objectives:

Control the money supply for credit

Control the money supply for credit
purpose
purpose

Augment bank
Augment bank

s investment in Govt.
s investment in Govt.
securities
securities

Ensure solvency of banks

Ensure solvency of banks
Approved Securities
Approved Securities
Govt. Promissory Note/
Govt. Promissory Note/
All State and Central Govt. Loans
All State and Central Govt. Loans
All State Development Loans
All State Development Loans
State Financial Bonds, ICICI Bonds, IFCI
State Financial Bonds, ICICI Bonds, IFCI
Bonds, NABARD Debenture
Bonds, NABARD Debenture
All State Electricity Bonds and Port trust
All State Electricity Bonds and Port trust
bonds if they are Guaranteed
bonds if they are Guaranteed
Municipal Corporation bonds / Debentures
Municipal Corporation bonds / Debentures
Unapproved Securities
Unapproved Securities

Units of UTI
Units of UTI

Investment made by Banks under

Investment made by Banks under
National Deposit Scheme, 1984
National Deposit Scheme, 1984

IVPs, KVPs,FD of Sardar Sarovar

IVPs, KVPs,FD of Sardar Sarovar
Narmada Nigam Limited, MTNL and
Narmada Nigam Limited, MTNL and
NTPC bonds
NTPC bonds

Konkan Railway Bonds issued by Konkan

Konkan Railway Bonds issued by Konkan
Railway Corporation
Railway Corporation
SLR Constituents
SLR Constituents
Cash in Hand
Net current account balances with all
nationalised banks and RBI (except those
for CRR)
Gold
Investments in approved securities
Procedure for Computation of SLR
The procedure to compute total NDTL for the The procedure to compute total NDTL for the
purpose of SLR under Section 24 (2) (B) of B.R. Act, purpose of SLR under Section 24 (2) (B) of B.R. Act,
1949 is broadly similar to the procedure followed for 1949 is broadly similar to the procedure followed for
CRR. CRR.
SCBs are required to include inter SCBs are required to include inter- -bank term bank term
deposits / term borrowing liabilities of all maturities deposits / term borrowing liabilities of all maturities
in in Liabilities to the Banking System Liabilities to the Banking System . .
Similarly, banks should include their inter Similarly, banks should include their inter- -bank bank
assets of term deposits and term lending of all assets of term deposits and term lending of all
maturities in maturities in Assets with the Banking System Assets with the Banking System for for
computation of NDTL for SLR purpose. computation of NDTL for SLR purpose.
Maintenance period, Penalty:
Maintenance period, Penalty:
Fortnight Fortnight
The liquidity reserves for the fortnight will be The liquidity reserves for the fortnight will be
assessed based on the NDTL of the reporting assessed based on the NDTL of the reporting
Friday of the preceding fortnight. Friday of the preceding fortnight.
Penalty Penalty
In cases of default in maintenance of CRR
requirement on a daily basis which is presently 99
per cent of the total CRR requirement
RBI will levy a penal interest for the day the RBI will levy a penal interest for the day the
default occurs at the rate of 3 percent per annum default occurs at the rate of 3 percent per annum
above the Bank Rate on the shortfall and if the above the Bank Rate on the shortfall and if the
default continues for the next working day, it will default continues for the next working day, it will
be increased to 5 percent per annum be increased to 5 percent per annum
No Interest Payment on Eligible Cash
Balances maintained by SCBs with
RBI under CRR
In view of the amendment carried out to In view of the amendment carried out to
RBI Act 1934, omitting sub RBI Act 1934, omitting sub- -section (1B) section (1B)
of Section 42, the Reserve Bank does not of Section 42, the Reserve Bank does not
pay any interest on the CRR pay any interest on the CRR
balances balances maintained by SCBs with maintained by SCBs with
effect from the fortnight beginning effect from the fortnight beginning
March 31, 2007. March 31, 2007.
MARGINAL STANDING
MARGINAL STANDING
FACILITY
FACILITY
SCBs can participate in the Marginal Standing SCBs can participate in the Marginal Standing
Facility (MSF) scheme introduced by Reserve Facility (MSF) scheme introduced by Reserve
Bank with effect from May 09, 2011. Bank with effect from May 09, 2011.
Under this facility, the eligible entities may Under this facility, the eligible entities may
borrow overnight, up to one per cent of their borrow overnight, up to one per cent of their
respective NDTL outstanding at the end of the respective NDTL outstanding at the end of the
second preceding fortnight. second preceding fortnight.- -CHANGED TO CHANGED TO
0.50 PER CENT FROM 24 0.50 PER CENT FROM 24- -7 7- -2013 AS PER 2013 AS PER
NOTIFICATION BY RBI NOTIFICATION BY RBI
PENALTY FOR SLR
PENALTY FOR SLR
SHORTFALL
SHORTFALL
If a banking company fails to maintain the If a banking company fails to maintain the
required amount of SLR, it shall be liable to required amount of SLR, it shall be liable to
pay to RBI in respect of that default, the penal pay to RBI in respect of that default, the penal
interest for that day at the rate of three per interest for that day at the rate of three per
cent per annum above the Bank Rate on the cent per annum above the Bank Rate on the
shortfall and if the default continues on the shortfall and if the default continues on the
next succeeding working day, the penal next succeeding working day, the penal
interest may be increased to a rate of five per interest may be increased to a rate of five per
cent per annum above the Bank Rate for the cent per annum above the Bank Rate for the
concerned days of default on the shortfall. concerned days of default on the shortfall.
Return in Form VIII (SLR)
Banks should submit to the Reserve Bank before 20th Banks should submit to the Reserve Bank before 20th
day of every day of every month, a return in Form VIII showing the month, a return in Form VIII showing the
amounts of SLR held on alternate Fridays during amounts of SLR held on alternate Fridays during
immediate preceding month with particulars of their immediate preceding month with particulars of their
DTL in India held on such Fridays or if any such Friday DTL in India held on such Fridays or if any such Friday
is a Public is a Public Holiday under the Negotiable Instruments Holiday under the Negotiable Instruments
Act, 1881, at the close of business on preceding working Act, 1881, at the close of business on preceding working
day. day.
ii) Banks should also submit a statement as annexure to ii) Banks should also submit a statement as annexure to
Form VIII Form VIII return giving daily position of (a) value of return giving daily position of (a) value of
securities held for the purpose of securities held for the purpose of compliance with SLR, compliance with SLR,
and (b) the excess cash balances maintained by them and (b) the excess cash balances maintained by them
with RBI in the prescribed format. with RBI in the prescribed format.
Correctness of Computation of
DTL to be certified by Statutory
Auditors
The Statutory Auditors should verify and The Statutory Auditors should verify and
certify that all items of outside liabilities, certify that all items of outside liabilities,
as per the bank as per the bank s books had been duly s books had been duly
compiled by the bank and correctly compiled by the bank and correctly
reflected reflected under DTL/NDTL in the under DTL/NDTL in the
fortnightly/monthly statutory returns fortnightly/monthly statutory returns
submitted to Reserve Bank for the submitted to Reserve Bank for the
financial year. financial year.
Dr. S. C. Bihari
Tell:9010620500 Tell:9010620500
Mail:scbihari@gmail.com
Thanks for your attention