The Reserve Bank of India (RBI) has decided to pay graded interest on eligible CRR balances held above the minimum 3%. Hitherto, the central bank did not pay any interest on CRR balances deposited with it.

Presently the CRR stands at 5.75% and the RBI will pay 1% interest on all eligible balances above the minimum 3% from 17 February 2007. RBI had raised CRR in two phases on 13 February 2007 from 5.50% to 6% with the first phase of 5.75% becoming effective 17 February 2007. The second phase of the hike, from 5.75% to 6%, will take effect from 3 March 2007.

The central bank had suspended interest on CRR on 24 June 2006, following the amendment to the RBI Act. But the amendment has not been backed by a Government notification allowing the RBI to offer some compensation to banks on the portion of their impounded deposits as an interim measure.

Hence, an RBI release says it will pay 3.5% interest on eligible CRR balances for the period during 24 June 2006 and 8 December 2006, and 2% for the period between 9 December 2006, to 16 February 2007.

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