Section 42(1) of the Reserve Bank of India Act, 1934 - Change in Daily Minimum Cash Reserve Maintenance Requirement

What exactly changes for scheduled banks from the reporting fortnight beginning October 16, 2026?

The key change is a stricter daily floor for Cash Reserve Ratio maintenance. Scheduled banks previously could hold at least 90% of their required CRR on each day of the reporting fortnight. From the fortnight beginning October 16, 2026, that minimum rises to 99%. This matters because banks will have much less room to fall below the prescribed reserve level on individual days.

For example, if a bank’s required CRR were 100 units, it previously needed at least 90 units each day. Under the new rule, it must keep at least 99 units each day. Separately, the average CRR maintained over all days must still be no less than the CRR prescribed by the Reserve Bank.

The Reserve Bank announced the change after reviewing current liquidity conditions. The notice does not describe those conditions in detail. It establishes the new 99% requirement from October 16, 2026, for scheduled banks.

What is the Cash Reserve Ratio (CRR), and where must banks keep this reserve?

The Cash Reserve Ratio, or CRR, is a reserve requirement for scheduled banks. It represents the cash reserve a bank must maintain against the deposits or liabilities covered by the Reserve Bank’s rules. CRR matters because it limits how much of a bank’s funds can be used elsewhere and supports orderly banking operations.

In practical terms, a bank calculates its required CRR and keeps the corresponding reserve with the Reserve Bank of India. For example, if the prescribed CRR requires 100 units, the bank must maintain that required reserve, subject to the daily and average rules in the notice. The article does not provide the current CRR percentage.

The notice focuses on timing, not the CRR rate itself. It says the daily average must not be below the CRR prescribed by the Reserve Bank. It also raises the permitted daily shortfall from 10% to just 1%.

How much of the required CRR must banks maintain each day under the new rule, and how does that compare with the earlier 90 percent requirement?

The new daily minimum is 99% of the required CRR. This means a scheduled bank can be below its full required CRR by no more than 1% on any day during the reporting fortnight. The change tightens daily compliance without changing the article’s statement that the fortnightly average must meet the prescribed CRR.

Suppose a bank’s required CRR is 100 units. Under the previous rule, it could maintain 90 units on a day. Under the new rule, it must maintain at least 99 units. The comparison is therefore 90% before versus 99% now, an increase of 9 percentage points in the daily minimum.

The revised requirement applies from the fortnight beginning October 16, 2026. The Reserve Bank links the decision to its review of current liquidity conditions. The notice does not give a numerical CRR rate or explain those liquidity conditions further.

What is a reporting fortnight, and how does the daily minimum requirement differ from the rule that the average CRR over the fortnight must meet the prescribed level?

A reporting fortnight is a two-week reporting period during which a scheduled bank’s CRR position is tracked day by day. The notice uses this period to apply two tests. Each day has a minimum maintenance requirement, and the average of all daily CRR holdings must not fall below the CRR prescribed by the Reserve Bank.

For example, imagine a bank must maintain 100 units of CRR. It cannot hold less than 99 units on any day under the new rule. Across the reporting fortnight, however, its daily holdings must average at least 100 units. Meeting the daily floor alone would not automatically satisfy the average requirement.

The new 99% floor starts with the fortnight beginning October 16, 2026. The article does not specify the exact calendar dates for each reporting fortnight. It clearly distinguishes the daily minimum from the separate average requirement.

Why did the Reserve Bank of India raise the daily minimum requirement in response to current liquidity conditions?

The stated reason is a review of current liquidity conditions. Based on that review, the Reserve Bank decided that scheduled banks should maintain a larger share of their required CRR every day. The notice gives no further description of the conditions or the specific concern the change addresses.

The mechanism is straightforward. A bank that previously could keep 90% of its required CRR on a day must now keep 99%. For a required reserve of 100 units, the minimum rises from 90 to 99 units. The bank therefore has less permitted variation in its daily reserve position while the fortnightly average rule remains in place.

The new requirement applies from the reporting fortnight beginning October 16, 2026. It is a policy decision under Section 42(1) of the Reserve Bank of India Act, 1934. Any more detailed explanation of the liquidity outlook is not included in the notice.

How could requiring banks to keep more of their CRR every day affect the money available for lending and short-term transactions?

A higher daily CRR floor can reduce the funds a bank may use for lending or short-term transactions on individual days. Reserves maintained for CRR are not available for those uses in the same way as deployable funds. This can make a bank’s daily liquidity management more constrained.

For example, if the required CRR is 100 units, the old rule allowed a bank to hold 90 units on a day, while the new rule requires 99 units. The additional 9 units must remain in reserve. The bank therefore has less room to use those funds for loans, payments, or short-term positions on that day.

The article does not measure the effect on lending, interest rates, or transactions. It only states that the Reserve Bank made the change after reviewing current liquidity conditions. The practical effect will depend on each bank’s reserves, funding, and overall liquidity position.

Why do banks keep reserves instead of lending out all the money they receive as deposits, and how does this support confidence in the banking system?

Banks keep reserves instead of lending every unit because depositors may need their money and banks must settle payments. A reserve gives a bank immediately available funds for these obligations. This helps reduce the risk that routine withdrawals or transfers become difficult to meet.

For example, if many customers request withdrawals on the same day, a bank with reserves can handle more requests without recalling loans immediately. The CRR framework requires a defined reserve level. Under this notice, the bank must keep at least 99% of its required CRR each day and maintain the prescribed level on average across the fortnight.

These functions support confidence in banking by showing that banks retain a required liquidity buffer. The article itself does not explain why banks hold reserves or discuss depositor confidence. Those points are established banking principles, while the notice focuses on the revised maintenance requirement.

Key Facts:

📌 Daily minimum CRR maintenance rises to 99%.

📌 The new rule begins with the fortnight starting October 16, 2026.

📌 The earlier daily minimum was 90%.

📌 CRR means Cash Reserve Ratio.

📌 Scheduled banks must maintain the prescribed CRR.

📌 The article does not state the current CRR percentage.

📌 The new daily minimum is 99% of required CRR.