Lok Sabha approves RBI bill | india | Hindustan Times
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Lok Sabha approves RBI bill

Lok Sabha on Wednesday approved the RBI amendment bill which increases the flexibility to fix the cash reserve ratio.

india Updated: May 18, 2006 18:13 IST

Lok Sabha on Wednesday approved the Reserve Bank of India (RBI) amendment bill which increases the flexibility of the central bank to fix the cash reserve ratio (CRR).

The legislation also allows the RBI to transact in a wider set of instruments and regulate transactions in derivatives, money market instruments and securities.

The amendment removed the cap and range of the CRR.

"To cope with any unforeseen eventualities in future, such as excess or lack of liquidity in the banking system, and for effective conduct of monetary policy, there is a need to enable RBI to determine CRR for scheduled banks without any floor or ceiling," the bill said.

Earlier, the central bank had to fix the cash reserve ratio -- the percentage of banks' deposits which they must keep as cash with the central bank -- in a band of 3 to 20 percent of a bank's net demand and time liabilities.

The amendment also specifies that the CRR will not carry any interest. The amendment also classifies the reverse repo rate as the main signalling instrument in line with an RBI move last year.

The bill was introduced in the lower house of parliament on May 13, 2005, but was referred to a parliamentary panel which suggested some minor changes.