The Reserve Bank of India (RBI) has announced a significant policy shift regarding the Cash Reserve Ratio (CRR) maintenance for scheduled banks, while in a move aimed at tightening the daily liquidity management within the financial sector, the central bank has decided to increase the mandatory daily maintenance limit of the CRR from the current 90 percent to 99 percent. This decision comes after a thorough review of the prevailing liquidity conditions in the banking system. According to the official statement released by the RBI on Friday, this new regulation is scheduled to be implemented starting from October 16, 2026.
Understanding the CRR Maintenance Framework
The Cash Reserve Ratio (CRR) is a vital monetary tool used by the Reserve Bank of India to regulate the amount of liquid cash available with banks. It represents the minimum percentage of a bank's total deposits that must be kept as a reserve with the RBI in the form of cash, while currently, scheduled banks are required to maintain at least 90 percent of this mandatory CRR on every single day of a fortnight. While the daily requirement was 90 percent, the average CRR maintained over the entire fortnight had to meet the specific ratio set by the RBI. By increasing the daily floor to 99 percent, the RBI is ensuring that banks maintain a much more consistent and stable level of cash reserves on a day-to-day basis, leaving very little room for daily fluctuations.
Liquidity Surplus and Management Measures
The decision to hike the daily CRR limit is closely linked to the substantial excess liquidity currently present in the banking system, while 88 lakh crore rupees. To manage this surplus and prevent it from causing imbalances in the financial markets, the Reserve Bank of India has been proactive over the last two months. The central bank has employed several measures, including the Variable Rate Reverse Repo (VRRR) auctions, to absorb this excess cash from the system. Earlier this week, RBI Governor Sanjay Malhotra commented on the liquidity situation, stating that the excess liquidity is expected to be phased out by the end of the 2026-27 financial year. Interestingly, the Governor had previously described increasing the CRR as the least preferred option for liquidity control, yet this adjustment in the daily maintenance limit serves as a strategic tool to manage the existing surplus without necessarily altering the headline CRR rate immediately.
Factors Contributing to Excess Liquidity
The source of this significant liquidity surplus can be traced back to several key financial activities. A major contributor has been the mobilization of Foreign Currency Non-Resident (Bank) or FCNR(B) deposits by banks. These deposits brought foreign currency into the system, which was later converted into rupee liquidity through swap arrangements with the RBI. Also, government spending has played a crucial role in increasing the cash flow within the banking system. This includes the disbursement of funds for various government projects as well as the routine end-of-month payments for salaries and pensions. The combination of these capital inflows and government expenditures has led to the current situation where the RBI felt it necessary to tighten the daily CRR maintenance rules to 99 percent to ensure better liquidity discipline among banks.