RBI Raises Daily CRR Floor to 99 Per Cent
Why in News?
- On 9 October 2026, the Reserve Bank of India raised the minimum daily Cash Reserve Ratio balance that scheduled banks must hold, from 90 per cent to 99 per cent of the prescribed requirement.
- The notification takes effect from the reporting fortnight beginning 16 October 2026. The RBI said it follows a review of prevailing liquidity conditions.
- The prescribed Cash Reserve Ratio itself is unchanged, and compliance is still judged on the fortnightly average of daily balances.
- Two days earlier, on 7 October 2026, the Monetary Policy Committee raised the repo rate to 5.50 per cent and moved to a stance of calibrated tightening.
Key Terminologies
- Cash Reserve Ratio
- The share of a bank's deposits and other liabilities that it must keep with the RBI. The RBI prescribes it for scheduled banks under Section 42(1) of the Reserve Bank of India Act, 1934.
- Net demand and time liabilities
- The base on which the ratio is applied. It covers a bank's deposits and other liabilities, but not items such as paid-up capital, reserves and loans taken from the RBI.
- Average daily balance
- The average of the balances a bank holds at the close of business on each day of a fortnight. A fortnight runs from a Saturday to the second following Friday.
Key Issues
- Narrower Daily Room: Banks could earlier fall to 90 per cent of the requirement on a given day. From 16 October the gap shrinks to 1 per cent, though Section 42 still measures compliance on the fortnight's average daily balance.
- Liquidity Management: The RBI cited its review of liquidity conditions. Its forex swap facility had brought in $132.98 billion through FCNR(B) deposits by 31 August 2026, which added rupee funds to the system.
- Policy Mix: A repo hike of 25 basis points to 5.50 per cent on 7 October acts on the price of money. The CRR change acts on how much cash banks can use each day, so the two together tighten conditions.
- Penalty Exposure: Section 42(3) charges penal interest of 3 per cent above the Bank Rate on a shortfall, and 5 per cent if it continues. With the Bank Rate at 5.75 per cent, this implies a first-fortnight penalty of 8.75 per cent.
Key Implications
Positive/Pros/Merits
- Rate Untouched: The prescribed ratio was cut in four 25 basis point steps to 3.0 per cent by the fortnight beginning 29 November 2025. The 9 October change does not reverse that cut.
- Flexible Tool: Under Section 42(1) the RBI sets the ratio without a statutory floor or ceiling. A change in the daily floor lets it tighten liquidity without another rate move.
- Steadier Reserves: Higher daily holdings keep a more predictable pool of cash with the RBI. This supports the stance of calibrated tightening that the Monetary Policy Committee adopted on 7 October 2026.
Negative/Cons/Demerits
- Funding Costs: The Tribune report notes that higher reserve holdings can tighten liquidity and raise funding costs for banks. Banks have less cash free for daily needs.
- Credit Availability: Reserves held with the RBI cannot be lent out. The same report says higher holdings can affect credit availability, which matters for working capital loans.
- Hike Cycle: Economists cited on 7 October saw cumulative tightening of up to 75 basis points, with the repo rate near 6 per cent by the end of FY27. Borrowers may face costlier loans.
Key Initiatives
- Reserve Bank of India Act, 1934: Section 42 lets the RBI prescribe the Cash Reserve Ratio for scheduled banks by notification, with penal interest at 3 per cent above the Bank Rate on a shortfall.
- RBI Notification, 6 June 2025: The RBI cut the ratio by 100 basis points in four equal tranches to 3.0 per cent of net demand and time liabilities, the last from the fortnight beginning 29 November 2025.
- Monetary Policy Committee, 7 October 2026: The committee raised the repo rate by 25 basis points to 5.50 per cent, set the standing deposit facility at 5.25 per cent and the marginal standing facility and Bank Rate at 5.75 per cent.
- RBI Notification, 9 October 2026: The minimum daily maintenance rises to 99 per cent of the prescribed ratio from the fortnight beginning 16 October 2026.
- United States Federal Reserve: The Board reduced reserve requirement ratios to zero from 26 March 2020, which removed reserve requirements for all depository institutions.
The RBI says the change follows a review of prevailing liquidity conditions. Compliance continues to be judged on the fortnightly average, and the prescribed ratio is not raised. The Monetary Policy Committee voted unanimously on 7 October 2026 to raise the repo rate and adopted a stance of calibrated tightening.
Director's Perspective
Way Forward
- Publish the liquidity data behind the 9 October review, such as system surplus and the share absorbed, so banks can plan daily cash positions.
- Pair the daily floor with clear guidance on how long it will stay, so treasury desks are not guessing before each fortnight.
- Keep the prescribed ratio unchanged until liquidity absorption through the forex swap inflows is measured, to avoid double tightening.
- Watch the rupee and reserves together, because a fall in reserves of $12.952 billion in a week drains rupee liquidity on its own.
The move is a modest, well-targeted tightening tool, and it is sound. It leaves the ratio at 3.0 per cent, keeps the fortnightly average test and removes only the slack of 9 percentage points in daily balances. Its weakness is the thin disclosure of liquidity data behind it. In a Mains answer, credit the RBI's use of a non-rate tool under Section 42, then conclude that its success depends on clear communication of how long it will last.
GS Relevance
Frequently Asked Questions
What did the RBI change about CRR on 9 October 2026?
The Reserve Bank of India raised the minimum daily balance banks must keep as Cash Reserve Ratio from 90 per cent to 99 per cent of the prescribed requirement. The change applies from the reporting fortnight beginning 16 October 2026. The prescribed ratio itself is not raised.
What is the Cash Reserve Ratio under the RBI Act?
The Cash Reserve Ratio is the share of a scheduled bank's net demand and time liabilities that it must keep with the RBI. Section 42(1) of the Reserve Bank of India Act, 1934 lets the RBI prescribe it by notification, and it was cut to 3.0 per cent in 2025.
What happens if a bank falls short of its CRR requirement?
A bank that falls short pays penal interest under Section 42(3) of the Reserve Bank of India Act, 1934. The rate is 3 per cent above the Bank Rate, rising to 5 per cent above it if the shortfall continues into the next fortnight.
PYQ Practice — Statement Analysis
1 Section 42 of the Reserve Bank of India Act, 1934 empowers the RBI to prescribe the Cash Reserve Ratio for scheduled banks.
Section 42(1) lets the RBI fix the percentage of net demand and time liabilities that banks keep with it.
2 The 9 October 2026 notification raised the prescribed Cash Reserve Ratio to 99 per cent of net demand and time liabilities.
It raised the minimum daily maintenance to 99 per cent of the prescribed ratio. The ratio itself was not raised.
3 Compliance with the Cash Reserve Ratio is measured on the average daily balance over a fortnight.
The Explanation to Section 42 defines the average daily balance over a fortnight.