RBI Raises Daily Minimum CRR Maintenance to 99%; Banks to Face Lower Liquidity Flexibility from October 16
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The scheduled banks are allowed to maintain minimum Cash Reserve Ratio (CRR) of not less than 90 percent of the required CRR on all days during the reporting fortnight, in such a manner that the average of CRR maintained daily shall not be less than the CRR prescribed by the Reserve Bank.
On a review of the current liquidity conditions, it has been decided to increase the minimum daily maintenance of the CRR from 90 per cent of the requirement to 99 per cent effective from the fortnight beginning October 16, 2026.
First understand what is CRR?
CRR (Cash Reserve Ratio) is the portion of a bank’s deposits that it must maintain as cash balance with the RBI. CRR (Cash Reserve Ratio) is maintained mainly to ensure that banks keep a portion of their deposits safely with the RBI instead of lending out the entire amount. Banks accept deposits from customers, but they cannot lend out 100% of those deposits. CRR ensures that a portion is kept with the RBI.
CRR is an important monetary policy tool.
- CRR increased → banks have less money available for lending → liquidity decreases
- CRR decreased → banks have more money available for lending → liquidity increases
For example, if a bank has ₹1,000 crore of deposits and the CRR is 4%, it has to maintain ₹40 crore with RBI. If too much money is circulating in the economy, it can contribute to inflation. RBI can increase CRR to reduce the amount of money banks can deploy.
What are the new rules?
Suppose a bank’s required CRR is ₹1,000 crore. The bank could maintain as little as ₹900 crore on a particular day. It could maintain more on other days and ensure that the fortnightly average was ₹1,000 crore.
From October 16: The bank must maintain at least ₹990 crore every day. It will have much less flexibility to temporarily reduce its CRR balance.
This is a liquidity-tightening measure at the individual bank level. Banks will have less deployable cash during the reporting fortnight and will need to manage their liquidity more carefully. Under the earlier 90% daily minimum, the bank could temporarily keep ₹900 crore with RBI on a particular day and use the remaining ₹100 crore temporarily for liquidity needs. Under new rule, Bank will have only Rs.10 crore to use.
So, banks may have slightly less flexibility to extend loans, especially if they were relying on the daily CRR flexibility.
Penalty
The Reserve Bank of India (RBI) has increased the Bank Rate by 25 basis points from 5.50% to 5.75%, effective immediately from October 7, 2026. As a result, the penal interest rates applicable to banks for shortfalls in maintaining the required Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) have also increased.
The penal interest rate, which was earlier Bank Rate plus 3 percentage points or Bank Rate plus 5 percentage points, has now increased from 8.50% to 8.75% and from 10.50% to 10.75%, respectively. This means that if a bank fails to maintain the required CRR or SLR, it may have to pay higher penal interest on the shortfall, depending on the duration of the shortfall.
