the Reserve Bank of India (Amendment) Act, 2006 was enacted in June 2006. Consequent to the enactment, the Reserve Bank, has decided to do away with the minimum requirement of 3% CRR and also to not have any maximum cap of 20% (as was the case before the Amendment).

SLR - Statutory Liquidity Ratio
SLR is that proportion of a bank’s Net Demand and Time Liabilities (NDTL) that it has to maintain as investments in certain specified assets. SLR is governed by the provisions of Section 24 of the
Banking Regulation Act. There is No minimum stipulation on SLR (earlier there used to be a minimum stipulated SLR of 25% - but this was removed with an amendment to the Banking Regulation Act in 2007).

However, SLR can not exceed 40%.
Net Demand and Time Liabilities
It is quite apparent that to arrive at CRR or SLR we need to first calculate NDTL.
What constitutes NDTL?

As the name suggest there are three broad components to NDTL.

    Demand Liabilities
    Time Liabilities; and
    A Netting Amount that is reduced from the Demand and Time Liabilities.

Additionally Demand and Time Liabilities (DTL) are further broken up into

    DTL to the banking system;
    DTL to Others; and
    Other DTL.

RBI has been empowered to decide on what kind of liabilities fall under DTL. In case of doubt, banks are advised to get a clarification from RBI.
NDTL Base for CRR and SLR

Is CRR and SLR maintained on the same base - viz NDTL?
The short answer is, No.

While the NDTL calculation is broadly the same, there are some important differences when it comes to it’s use to compute CRR and SLR.

Some items are exempt for CRR purposes and so, the base on which CRR is to be maintained is not the same as the base on which SLR is computed. We shall look at these differences in the base a little later.
Demand Liabilities

Demand Liabilities of a bank are liabilities which are payable on demand. These include

    current deposits;
    demand liabilities portion of savings bank deposits;
    margins held against letters of credit / guarantees;
    balances in overdue fixed deposits;
    cash certificates and cumulative/recurring deposits;
    outstanding Telegraphic Transfers (TTs);
    Mail Transfer (MTs);
    Demand Drafts (DDs);
    unclaimed deposits;
    credit balances in the Cash Credit account; and
    deposits held as security for advances which are payable on demand.

Time Liabilities
Time Liabilities of a bank are those liabilities that are payable other than on demand.

These include
    fixed deposits;
    cash certificates;
    cumulative and recurring deposits;
    time liabilities portion of savings bank deposits;
    staff security deposits;
    margin held against letters of credit, if not payable on demand;
    deposits held as securities for advances which are not payable on demand; and
    gold deposits.

Other demand and time liabilities (ODTL)
ODTL includes:
    interest accrued on deposits;
    bills payable;
    unpaid dividends;
    suspense account balances representing amounts due to other banks or public;
    net credit balances in branch adjustment account;
    Cash collaterals received under collateralized derivative transactions.

Any amounts due to the banking system which are not in the nature of deposits or borrowing are also to be included in other demand and time liabilities. Such liabilities may arise due to items like (i) collection of bills on behalf of other banks, (ii) interest due to other banks and so on
Inter Bank Assets

Assets with the banking system include

    balances with banks in current account;
    balances with banks and notified financial institutions in other accounts;
    funds made available to banking system by way of loans or deposits repayable at call or short notice of a fortnight or less; and
    loans other than money at call and short notice made available to the banking system.

Any other amounts due from banking system which cannot be classified under any of the above items are also to be taken as assets with the banking system.
Liabilities not to be included in DTL / NDTL calculation

The following liabilities are not be included in the DTL calculation for purposes of maintaining CRR and SLR

    Paid up capital, reserves;
    Any credit balance in the Profit & Loss Account of the bank;
    Amount of any loan taken from the RBI;
    Amount of refinance taken from Exim Bank, NHB, NABARD, SIDBI;
    Net income tax provision;
    Amount received from Deposit Insurance and Credit Guarantee Corporation (DICGC) towards claims and held by banks pending adjustments thereof;
    Amount received from ECGC by invoking the guarantee;
    Amount received from insurance company on ad-hoc settlement of claims pending judgment of the Court;
    Amount received from the Court Receiver;
    The liabilities arising on account of utilization of limits under Bankers Acceptance Facility (BAF);
    District Rural Development Agency (DRDA) subsidy of Rs.10, 000/- kept in Subsidy Reserve Fund account in the name of Self Help Groups;
    Subsidy released by NABARD under Investment Subsidy Scheme for Construction/Renovation/Expansion of Rural Godowns;
    Net unrealized gain/loss arising from derivatives transaction under trading portfolio;
    Income flows received in advance such as annual fees and other charges which are not refundable;
    Bill rediscounted by a bank with eligible financial institutions as approved by RBI;
    Provision not being a specific liability arising from contracting additional liability and created from profit and loss account.

NDTL Computation

Computation of NDTL is a multi step process as follows :

    Compute Demand Liabilities to the banking system
    Compute Time Liabilities to the banking system

Take the sum of the above two to arrive at “DTL to the Banking System” - (A)

    Compute Demand Liabilities to others
    Compute Time Liabilities to others

Take the sum of the above to arrive at “DTL to Others” - (B)

Compute Other Demand and Time Liabilities - (C)

Calculate Assets to the banking system - (D)

Compute Net Inter Bank DTL by subtracting Assets to the Banking System from DTL to the banking system - (A-D)

If the Net Inter Bank DTL so calculated is negative or zero, it is ignored.

Thus NDTL is given by

NDTL = (A-D)+(B+C) if A-D is greater than zero,

NDTL = B+C if A-D is less than or equal to zero.
CRR Maintenance

Items on which CRR maintenance is exempt:

Banks are exempted from maintaining CRR on the following liabilities:

    Liabilities to the banking system in India.
    Credit balances in Asian Clearing Union (US$) Accounts.
    Demand and Time Liabilities in respect of their Offshore Banking Units (OBU)

For CRR purposes, NDTL should not include inter-bank term deposits / term borrowing liabilities of original maturities of 15 days and above and up to one year. Similarly banks should exclude their inter-bank assets of term deposits and term lending of original maturity of 15 days and above and up to one year for calculating inter bank assets (which is used to net off DTL and arrive at NDTL). The interest accrued on such deposits should also not be included.

As a consequence of the above, CRR is not maintained on
    Net Inter Bank DTL;
    Non Resident Deposits (NRE and NRNR);
    FCNR (B) - Short term and Long term;
    Exchange Earner’s Foreign Currency (EEFC) accounts;
    Resident Foreign Currency Accounts;
    Escrow Accounts by Indian Exporters;
    Foreign Credit Line for Pre-Shipment Credit Account;
    Overseas rediscounting of bills;
    Credit Balances in ACU (US dollar) Account;