In an effort to manage the prevailing liquidity conditions across the financial system, the Reserve Bank of India has revised the operational norms for scheduled commercial banks. Under the updated mandate, lenders will now be required to maintain at least 99 percent of their stipulated Cash Reserve Ratio (CRR) requirement on a daily basis. This marks a substantial increase from the existing daily minimum threshold of 90 percent, with the new regulatory framework taking effect from October 16, 2026.
Understanding the Cash Reserve Framework
Under the existing operational structure, scheduled commercial banks were obligated to maintain no less than 90 percent of their mandatory reserve requirement on each day of a reporting fortnight. Alongside this daily requirement, banks must also ensure that the daily average over the entire fortnight matches or exceeds the overall reserve proportion fixed by the central bank. The Cash Reserve Ratio is the specified portion of total deposits that commercial banks must park with the Reserve Bank of India in cash form to maintain financial stability. Raising the daily proportion forces lenders to operate with tighter intraday liquidity buffers.
Surplus Liquidity Pressures on the Financial System
The regulatory adjustment comes against the backdrop of significant surplus funds within the banking channel, which stood at approximately Rs 3.88 lakh crore as of October 8. Over the past two months, the monetary authority has deployed a range of mechanisms, including Variable Rate Reverse Repo (VRRR) auctions, to absorb excess funds from the market. Earlier in the week, RBI Governor Sanjay Malhotra remarked that the surplus liquidity environment is projected to normalize by the conclusion of the 2026-27 financial year, while describing a change in the CRR requirement as the least preferred operational route.
Factors Driving Inflows into the Banking Channel
A combination of foreign inflows and domestic fiscal operations contributed to the massive liquidity buildup in the system. Substantial accumulations occurred as banks mobilized Foreign Currency Non-Resident (Bank), or FCNR(B), deposits from overseas. The inflow of foreign exchange, followed by subsequent swap arrangements with the central bank, injected substantial rupee liquidity into the commercial banking ecosystem. Furthermore, routine end-of-month government expenditure, particularly disbursements on civil pensions and employee salaries, further expanded the pool of funds available within the banking structure.
