According to Article 36 of the Bangladesh Bank Order 1972, every scheduled bank has to maintain Cash Reserve Ratio (CRR) (often called Cash Reserve Requirement) in the form of cash with BB the amount of which shall not be less than such portion of its total demand and time liabilities as prescribed by BB from time to time. Presently, the required CRR is 5.50% on bi-weekly average basis and minimum 5.00% on daily basis1.
According to Section 33 of the Bank Company Act 1991, every scheduled bank has to maintain Statutory Liquidity Ratio (SLR) in the form of cash or gold or un-encumbered approved securities the market value of which shall not be less than such portion of its total demand and time liabilities as prescribed by BB from time to time. The required SLR is 13% daily for conventional banks and 5.5% daily for Islamic Shari'ah based banks and Islamic Shari'ah based banking of conventional banks2.
The main liability of a bank is deposit. The other liability items are provision, subordinated bond, accrued expense etc.
For monetary policy purpose, these liabilities of banks are divided into two parts:
Demand and time liabilities should include all on-balance sheet liabilities excluding the items listed below3:
Paid up capital and reserves;
Loans taken from BB;
Credit Balance in Profit and Loss account;
Repo, Special Repo and any kind of Liquidity Support taken from BB.
Various items of demand and time liabilities which are reckonable for the computation of required CRR and SLR are listed in Annex-1 of DOS Circular No. 1 dated 19 January 2014. The items listed are generic in nature and are applicable for both conventional and Islami banking.
At present, banks are allowed to maintain cash reserve with local currency (Taka) only. The day end balances of the Taka current accounts maintained with different offices of BB will be aggregated to compute the maintained cash reserve of the day. The balance so maintained shall have to be un-encumbered in all aspect.
The eligible components for maintaining Statutory Liquidity Reserve are:
Cash in tills (both local and foreign currency)
Daily excess reserve (excess of Cash Reserve) maintained with BB
Balance maintained with the agent bank of BB
Un-encumbered approved securities as defined section 5 clause 'ka' of Bank Company Act, 1991. The clause refers to clause a, c and d of section 20 of the Trusts Act, 1882.
Credit balance in Foreign Currency Clearing Account maintained with BB.
Penal interest @ Bank Rate + 5% is charged for shortfall in CRR and @ prevailing special repo rate for shortfall in SLR6. Present Bank Rate is 5%7 and special repo rate is normally fixed at 3% higher than repo rate8. At present, repo rate is 6.00%9 and thus special repo rate is 9.00%.
CRR and SLR may be used to regulate money supply by central bank. When central bank increases CRR/SLR, banks have to keep more cash/gold/approved securities and it will have less money. As a result, money supply in the economy will decrease. Similarly, when central bank decreases CRR/SLR, banks have more money available and money supply will increase. Moreover, CRR/SLR also regulates money creation ability of banks. If CRR/SLR is increased, the money creation ability of banks decreases and vice versa. Thus, CRR/SLR may be used to control money supply.
CRR/SLR increases solvency of banks. CRR/SLR reserves can be used to make payment against the liabilities by a bank in the extreme case when it is running out of fund but cannot manage it from other sources.
Maintenance of SLR in approved securities ensures investment by banks in government bonds.
1 MPD Circular No. 1 dated 03 April 2018
2MPD Circular No. 2 dated 10 December 2013
3DOS Circular No. 1 dated 19 January 2014
5DOS Circular No. 1 dated 19 January 2014
7Table XIIB of Economic Trend
9MPD Circular No. 2 dated 03 April 2018
CRR ও SLR সম্পর্কে একজন ব্যাংকারের জানা থাকা উচিত- যতটা না ব্যাংকিং কাজ করার জন্য তার চেয়ে বেশি কোন viva বা exam দেওয়ার ...Posted by IKnowledge Bank on Thursday, December 8, 2016