June 22, 2006

To All Scheduled Commercial Banks
(excluding Regional Rural Banks)

Dear Sir,

Please refer to paragraph 2.3.7 of our Master Circular RBI/2005-06/70/DBOD.Ret.BC.18/12.01.001 dated July 19, 2005 on CRR and SLR.

2. In terms of the instructions contained therein, every Scheduled Commercial Bank is exempted from maintaining average CRR on the following liabilities, subject to the maintenance of statutory minimum CRR of 3 per cent on its total demand and time liabilities as computed under section 42(1) of the Reserve Bank of India Act, 1934:

(i) Liabilities to the banking system in India as computed under Clause (d) of the Explanation to Section 42(1) of the RBI Act, 1934;

(ii) Credit balances in ACU (US $) Accounts;

(iii) Transactions in Collateralized Borrowing and Lending Obligation (CBLO) with Clearing Corporation of India Ltd. (CCIL); and

(iv) Demand and Time Liabilities in respect of their Offshore Banking Units (OBUs).

3. A reference is invited to our circular DBOD.No.Ret.BC.91/12.01.001/2005-2006 dated June 22, 2006 regarding enactment of the Reserve Bank of India (Amendment) Bill 2006 and its coming into force with effect from June 22, 2006. Consequent upon the amendment to sub-section (1) of Section 42 of the Reserve Bank of India Act, 1934, the statutory minimum CRR requirement of 3 percent of total demand and time liabilities no longer exists.

4. Further, consequent upon the amendment to sub-section (1) of Section 42 of the Reserve Bank of India Act, 1934, the Reserve Bank having regard to the needs of securing monetary stability in the country, can prescribe the Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate. Accordingly, Reserve Bank of India has decided to continue with the status quo on the rate of CRR required to be maintained by Scheduled Commercial Banks at 5 per cent of their demand and time liabilities, in terms of our circular DBOD.No.Ret.BC.91/12.01.001/2005-2006 dated June 22, 2006. It has also been decided to exempt the liabilities referred to at paragraph 2 (i), (ii), (iii) and (iv) on the previous page from the above CRR requirement of 5 per cent of the demand and time liabilities of Scheduled Commercial Banks.

5. A copy of the relative notification DBOD.No.Ret.BC.92/12.01.001/2005-2006 dated June 22, 2006 is enclosed.

Yours faithfully,
(T.B.Satyanarayan)

DBOD.No.BC. 92 /12.01.001/2005-2006

June 22, 2006

Consequent upon the amendment to sub-section (1) of Section 42 of the Reserve Bank of India Act, 1934 (2 of 1934), the statutory minimum Cash Reserve Ratio (CRR) requirement of 3 per cent of the total demand and time liabilities in respect of Scheduled Commercial Banks no longer exists with effect from June 22, 2006. Further, consequent upon the amendment to sub-section (1) of Section 42 of the Reserve Bank of India Act, 1934, the Reserve Bank having regard to the needs of securing monetary stability in the country, can prescribe the Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate. In terms of these powers, Reserve Bank of India has decided to continue with the status quo on the rate of CRR required to be maintained by Scheduled Commercial Banks at 5 per cent of their demand and time liabilities. In exercise of the powers conferred by sub-section (7) of Section 42 of the Reserve Bank of India Act, 1934, the Reserve Bank of India hereby exempts every Scheduled Commercial Bank from the maintenance of CRR at 5 per cent on the following liabilities with effect from June 22, 2006:

(i) Liabilities to the banking system in India as computed under Clause (d) of the Explanation to sub-section (1) of Section 42 of the RBI Act, 1934;

(ii) Credit balances in ACU (US $) Accounts;

(iii) Transactions in Collateralized Borrowing and Lending Obligation (CBLO) with Clearing Corporation of India Ltd. (CCIL); and

(iv) Demand and Time Liabilities in respect of their Offshore Banking Units (OBUs).

(Anand Sinha)

Executive Director