Bank of baroda

Legal Reserve Requirements
Cash Reserve Ratio
A banking company such as us is required to maintain a specified percentage of its demand and time liabilities,
excluding inter-bank deposits, by way of balance in current account with the RBI. The cash reserve ratio can be a
minimum of 3.0% and a maximum of 20.0% pursuant to Section 42 of the Reserve Bank of India Act, 1934. From October
2, 2004, it has been increased to 5%. The Finance Act, 2005 proposes to remove these minimum and maximum levels.
On September 18, 2004, the cash reserve ratio was changed to 4.75%.
Paid up capital, reserves, credit balance in the profit and loss account of the bank, amount availed of as refinance from
the RBI, and apex financial institutions, provision for income tax in excess of the actual estimated liabilities, specified inter
bank term deposits/term borrowing liabilities are excluded from the calculation of the cash reserve ratio:
The RBI pays no interest on the cash reserves up to 3.0% of the demand and time liabilities and pays interest on the
eligible cash balances, currently at the rate of 3.5%. Earlier, interest was paid by the RBI at the bank rate.
The cash reserve ratio has to be maintained on an average basis for a fortnightly period and should not be below 70.0%
of the required cash reserve ratio on any day of the fortnight.
Statutory Liquidity Ratio
In addition to the cash reserve ratio, a banking company such as us is required to maintain a specified minimum
percentage of its net demand and time liabilities by way of liquid assets like cash, gold or approved securities. The
percentage of this liquidity ratio is fixed by the RBI from time to time, and it can be a minimum of 25.0% and a maximum
of 40.0% pursuant to Section 24 of the Banking Regulation Act. At present, the RBI requires banking companies to
maintain a liquidity ratio of 25.0%. The Banking Regulation (Amendment) and Miscellaneous Provisions Bill, 2003
introduced in the Indian Parliament proposed to amend Section 24 of the Banking Regulation Act to remove the minimum
Statutory Liquidity Ratio stipulation, thereby giving the RBI the freedom to fix the Statutory Liquidity Ratio below this level.
It is proposed in the Finance Act, 2005 to remove these minimum and maximum levels by carrying out the amendments
in the respective regulations.