Mumbai: The Reserve Bank of India (RBI) said on Thursday that as a result of amended RBI legislation the minimum per cent of cash that banks have to keep with the central bank had been scrapped.
The monetary authority also said in a statement that starting with the two-weekly reporting cycle beginning June 24, it would no longer be paying interest on cash reserve ratio (CRR) balances.
RBI said it was setting up an internal group to review the system in which banks maintain cash reserves with the central bank, although it was leaving the actual cash reserve ratio unchanged at 5 per cent.
The CRR is the percentage of their total demand and time liabilities which banks have to maintain as cash with the central bank.
Before the law was amended, the statutory minimum was 3 per cent.
"The Reserve Bank has decided to constitute an internal technical group to undertake an overall review of the 'system' and draw out a medium term roadmap," it said in a statement.
It did not say how long it expected the review to take.
Pending the group's recommendations, the monetary authority said it had decided to "continue with the status quo" on existing provisions of CRR maintenance, including the CRR rate.
The central bank has left the CRR unchanged since October 2004, when it raised it to 5.0 per cent from 4.75 per cent.
Bankers lobbied unsuccessfully for the rate to be lowered earlier this year in a bid to ease tight liquidity conditions which had been building up in the money market.
But some analysts now expect the central bank to raise the CRR from 5 per cent in the next few months to rein in surplus cash and contain inflationary expectations in a robustly growing economy.
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