RBI to pay interest on banks' CRR

Mumbai: The Reserve Bank of India (RBI) will pay interest on the accumulated cash reserves of banks under the mandatory cash reserve ratio (CRR) prescribed by the central bank.

RBI said it would be paying an interest of 3.5 per cent for the 24 June, 2006, to 8 December, 2008, period. For the period from 9 December, 2006, to 16 February, 2007, the RBI would pay interest at the rate of two per cent.

Besides, the RBI would also pay a one per cent interest for the period from 17 February, 2007, till further notice. It also stated that it would not be charging any penalty on failure to maintain CRR.

The RBI had on 22 June, 2006, decided to continue status quo on the rate of cash reserve ratio (CRR) to be maintained by scheduled banks and the extant exemptions; to remove the statutory minimum CRR maintenance requirement of three per cent; and hence not to pay any interest on the eligible CRR balances maintained by scheduled banks with effect from the fortnight beginning 24 June, 2006.

Subsequently, on 9 January, 2007, the RBI has notified that all the provisions, except section 3 of the Reserve Bank of India (Amendment) Act, 2006, which provided for removal of the floor and ceiling on the CRR shall come into force.