Nepal, banks performance, merger, financial stability. Download limit exceeded you have exceeded your daily download allowance. Understanding monetary policy and financial markets. The ratio of these liquid assets to the total demand and time liablities is called statutory liquidity ratio. Statutory liquidity ratio is as prescribed under section 24 of the banking regulation act, 1949. Costs of mergers and acquisitions are calculated in order to check to the viability and profitability of any merger or acquisition deal. Macroprudential intermediation ratios and macroprudential liquidity buffers for conventional commercial banks, sharia commercial banks, and sharia business units. Pdf this paper examines the longterm effect of various regulatory, bank specific and. According to the instructions issued by bangladesh bank through brpd circular letter no. Form a return for crr under section 42 2 of the rbi, act, 1934 and form viii return for slr under section 24 of the banking regulation act, 1949. Crr and the statutory liquidity ratio sage journals.
Furthermore, the ratio of liquid and trading assets to total shortterm funding stood at 59. The rbi act instructs that all commercial banks and some other specified institutions in the country have to keep a given proportion of their demand and time deposits ndtl or net demand and time liabilities as liquid assets in their own vault. As liquidity has registered signs of easing in the past few months, the. Crr and statutory liquidity ratio slr reserve bank of india.
Increase in statutory liquidity ratio adversely affects the capacity of commercial banks to create credit. Even as lawyers and investment bankers work out the details and assess the options, its becoming ncreasingly likely that shriram transport finance will merge with idfc and shriram. This ratio was prescribed by the section 24 2a of banking regulation act 1949, which initially mandated for a 23% slr. Sale of securities in the open market by the commercial banks reduces their crediting power. Narsimham committee ii was established which favoured the merger of strong public sector banks and. The reserve ratio is the portion of reservable liabilities that commercial banks must hold onto, rather than lend out or invest.
Liquidity analysis using cash flow ratios and traditional ratios. Purpose this master circular prescribes the broad details of the reserve requirements. The broad details of the reserve requirements are summarised below. Liquid assets ratio of commercial banks down from 33. Further, as per banking regulation act, 1949, the banks in india are required to hold liquid assets to maintain statutory liquidity ratio slr. The slr to be maintained by banks is determined by the rbi in order to control the expansion.
As announced in the second bimonthly monetary policy statement 201718 of the reserve bank of india today, it has been decided to reduce the statutory liquidity ratio slr of commercial banks, primary urban cooperative banks ucbs, state cooperative banks and central cooperative banks from 20. This is a requirement determined by the countrys central bank. How much cash the merged entity needs to set aside for cash reserve ratio crr and statutory liquidity ratio slr. The statutory liquidity ratio slr for commercial banks, development banks and financial institutions has remained the same as their previous rate at 10%, 8% and 7% respectively. Further, average level 2 assets, primarily consisting of aa and above rated corporate bonds and commercial papers, were. Impact of banking sector reforms on crr and slr in. Bank rate, statutory cash reserve requirement, statutory liquidity ratio are the instruments of quantitative credit control. The ratio of liquid assets to net demand and time liabilities ndtl is called statutory liquidity ratio slr. This was applicable from october 1, 2018 resulting in a total of 15. Classification a statutory guideline issued by the rbi under section 35a of the banking regulation act, 1949. The reserve bank of india regulates the commercial banks. As a result, the smaller target company loses its existence as a separate entity. Cash reserve ratio crr 5% for demand liabilities including less than 1 year time deposits. However, the regulatory factors of cash reserve ratio and profitability.
Cash reserve ratio and statutory liquidity ratio goodreturns. Regulatory framework for supervision of liquidity risk hong kong. Notably, some of the indicators implied are roa, roe, capital ratio capital adequacy ratio car, profit margin, liquidity ratio and leverage ratio. In india, the statutory liquidity ratio slr is the government term for the reserve requirement. Master circular cash reserve ratio crr and statutory. Pdf this paper examines the longterm effect of various regulatory, bankspecific and. The total amount of equity consideration was nearly 67 billion dollars.
The amount of liquid assets, such as cash, precious metals or other shortterm securities, that a. The cash reserve ratio crr for domestic banks, commercial banks. For further details, see ficoms liquidity coverage ratio reporting guide. Critical analysis of banking sector reforms in india harsh nandal assistant professor, department of economics. The liquidity adjustment facility laf system was operating on auctionbased variable rate during the period from april 27, 2001 to march 28, 2004, and moved to fixed rate mode from march 29, 2004. The capitalcumdeposit ccd for banks and financial institutions are to remain unrevised for fy 207677. Here is why shriram transport is seeking to merge with idfc. This minimum percentage is called statutory liquidity ratio. Previous instructions this master circular is a compilation of the instructions contained in. An increase in statutory liquidity ratio reduces the excess reserves of commercial banks and limits their credit creating power. Supervision bcbs had introduced liquidity coverage ratio lcr, which requires banks to maintain high quality liquid assets hqlas to meet 30 days net outgo under stressed conditions.
Cash reserve ratio crr and statutory liquidity ratio slr please refer to dos circular no. The ratios discussed so far are not the only ones by which liquidity can be measured. Moral suasion is not quantitative credit control instrument of credit control. Pdf factors affecting the liquidity of commercial banks in india. In india, the statutory liquidity ratio is the government term for the reserve requirement that commercial banks are required to maintain in the form of cash, gold reserves, reserve bank of india rbi approved securities before providing credit to the customers. In 1962, they were merged and a single mini mum crr of 3.
The amount of the above mentioned exchange ratios equaled 17. The ratio of cash to payments that was used in earlier chapters is a fifth measure of liquidity. Master circular cash reserve ratio crr and statutory liquidity ratio slr a. Moral suasion implies persuasion and request made by the central bank to the commercial banks to cooperate with the general monetary policy of the former. Correctness of computation of dtl to be certified by statutory auditors. Statutory liquidity ratio slr consequent upon amendment to the section 24 of the banking regulation act, 1949 through the banking regulation amendment act, 2007 replacing the regulation amendment ordinance, 2007, effective january 23, 2007, the reserve bank can prescribe the slr for scbs in specified assets. Factors affecting the liquidity of commercial banks. Liquidity ratios measure a companys ability to pay debt obligations and its margin of safety through the calculation of metrics including the current ratio, quick ratio, and. Liquidity analysis using cash flow ratios and traditional.
Classification and valuation of approved securities for slr. The amount of liquid assets, such as cash, precious metals or other shortterm securities, that a financial institution must maintain in its. Insurance returns and solvency regulations 1980 br 16 1980 made under sections 18 and 53 of the insurance act 1978 and brought into operation on 1 january 1980 table of contents citation interpretation insurers to make statutory financial return in accordance with these regulations return to relate to relevant year content of statutory. Master circular maintenance of statutory reserves cash reserve ratio crr and statutory liquidity ratio slr the reserve bank of india has been periodically issuing instructions to primary urban cooperative banks pcbs regarding maintenance of cash reserve ratio crr and statutory liquidity ratio slr and matters related thereto.
The word statutory here means that it is a legal requirement and liquid asset means assets in the form of cash, gold and approved securities. The bank displayed a relatively low liquidity risk at fy18, with the statutory liquidity ratio maintained above 85. The statutory liquidity ratio slr last witnessed a change in its level on january 04, 2020 when it declined by 0. The statutory liquidity ratio is determined by the central bank as the percentage of total demand and time liabilities. However, the regulatory factors of cash reserve ratio and profitability determined by. The policy allows merging banks to maintain the spread rate at 4. Another relevant conclusion is that, capital adequacy ratio, statutory liquidity ratio and bank size have.
A study on the viability of rrbs as rural financial institutions. Which one of the following is not a quantitative c. Statutory liquidity ratio slr 19% for demand liabilities including less than 1 year time deposits. Master circular maintenance of statutory reserves cash. Previous instructions this master circular is a compilation of the instructions contained. Ncert solutions for class 12 macro economics banking.
Reduction in statutory liquidity ratio slr the reduction in slr by 50 bps to 21. The working paper points out the most important liquidity ratios. Liquidity coverage ratio lcr the lcr is a risksensitive liquidity metric that aims to ensure that a credit union has an adequate stock of hqla to survive a 30day stress scenario. A merger involving idfc bank has to factor in the likely statutory liquidity ratio isssue, or investment in government bonds, to be borne by the combined entity. Apart from cash reserve ratio crr, banks have to maintain a stipulated proportion of their net demand and time liabilities in the form of liquid assets like cash, gold and unencumbered. A statutory merger is one in which all the assets and liabilities of the smaller company is acquired by the bigger acquiring company. Critical analysis of banking sector reforms in india. In consonance with the mediumterm objectives of financial sector reform, the slr was brought down from its peak level of 38. The slr is determined as a percentage of total demand and. Development bank supervision report 2015 nepal rastra bank baluwatar, kathmandu, nepal july 2015. Liquid assets ratio of pda institutions increased from 8. The reserve bank of india regulates the commercial banks in matters of 1. The time liabilities refer to the liabilities of a bank which is to be paid to the customer anytime the demand arises and are the deposits of the customers which are to be paid on demand. Classification a statutory guideline issued by the rbi under section 35a of the br act, 1949.
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