Our Bureau

Mumbai, Aug. 10

The Reserve Bank of India has warned banks that they will have to pay penalty in case of default in maintenance of Cash Reserve Ratio on a daily basis.

As the interest payable to banks on CRR was withdrawn, the RBI can no longer deduct the penal charges from the interest payable, as was the practice earlier. Banks are required to maintain a minimum of 70 per cent of the total CRR requirement on a daily basis. If there was a shortfall in the CRR requirement, banks would be charged a penal interest of 3 per cent above the Bank Rate on the shortfall amount. If the shortfall continues more than one day, the penal interest would be 5 per cent above the Bank Rate.

In case there is a default in maintenance of CRR on average basis during a fortnight, penal interest would be charged as per the RBI Act, said the notification. According to a bank official, the RBI charges 25 per cent on the shortfall in case banks are not maintaining the CRR on average during a fortnight.

Earlier, as the RBI was paying interest on excess CRR to banks, in case of a default, the central bank used to reduce 1/14th of the interest payable on that particular day. But now with the interest payable to banks on CRR being withdrawn, this is no longer possible.

Therefore, it is necessary to charge the banks a penal charge, the bank official said. The RBI had early this year fined two public sector banks, Bank of Baroda and Canara Bank, for violation of CRR norms.

(This article was published in the Business Line print edition dated August 11, 2006)
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