The Reserve Bank of India (RBI) announced that it has tightened cash reserve ratio (CRR) maintenance norms for banks, raising the minimum daily maintenance requirement to 99 per cent of the prescribed CRR from the existing 90 per cent.
The revised rule will come into effect from the reporting fortnight beginning October 16. Under the current framework, banks are required to maintain an average daily CRR balance equivalent to the prescribed requirement over a fortnight, with the flexibility to maintain at least 90 per cent of that requirement on any given day.
With the latest notification, banks will now have to maintain 99 per cent of their prescribed CRR on a daily basis, significantly reducing their ability to draw down reserve balances on individual days.
The RBI has not changed the overall CRR ratio. Instead, the move is aimed at tightening daily liquidity management by banks and ensuring a more consistent maintenance of reserve requirements.
The impact of the revised norm is expected to vary across banks depending on their liquidity positions and treasury management practices.
Banks that regularly operate close to the minimum reserve threshold may need to make adjustments to their day-to-day liquidity management.
The decision comes days after RBI Governor Sanjay Malhotra said in the October 7 monetary policy review that surplus liquidity in the banking system was expected to ease gradually through the remainder of the financial year due to natural liquidity-draining factors.
Banking system liquidity had surged during August and September following strong capital inflows, including funds mobilised through the RBI’s special foreign currency non-resident bank (FCNR-B) deposit facility.
However, the surplus has moderated in recent weeks after the central bank conducted variable rate reverse repo (VRRR) auctions and open market operation (OMO) bond sales, alongside other liquidity outflows.
According to RBI data, the average daily liquidity surplus under the liquidity adjustment facility (LAF) stood at Rs 5.9 lakh crore since the August meeting of the Monetary Policy Committee. The latest data showed the banking system’s liquidity surplus at Rs 3.92 lakh crore.
The central bank said it would continue to closely monitor liquidity conditions and deploy appropriate instruments as required. These include VRRR auctions, dollar-rupee sell-buy swaps and OMO operations to ensure orderly liquidity conditions in the financial system.
