The Reserve Bank of India has tightened banks’ daily cash reserve requirements and announced a Rs 25,000 crore sale of government securities, moves that will withdraw liquidity from the banking system and put upward pressure on overnight money market rates.
The revised cash reserve ratio requirement will take effect from the fortnight beginning October 16, 2026. The RBI has raised the minimum daily CRR balance banks must maintain from 90% to 99% of the prescribed level, while leaving the statutory CRR unchanged at 4% of deposits.
The measure reduces the flexibility banks previously had to manage their cash balances during each reporting fortnight. Under the earlier framework, banks were required to maintain at least 90% of the prescribed CRR on each day, provided their average daily balance over the fortnight met the full requirement. From October 16, they will have to maintain at least 99% every day and continue to meet the full requirement on average over the fortnight.
Using aggregate deposits of around Rs 284 lakh crore as a rough proxy, the higher daily requirement could impound approximately Rs 1 lakh crore from the banking system. The daily CRR balance would rise from about 3.6% to 3.96% of deposits, even though the statutory ratio remains at 4%.
Banks keep CRR balances with the RBI and cannot use those funds for lending or other short-term liquidity needs. The revised rule therefore requires them to hold a larger portion of deposits with the central bank on a daily basis. Dealers said banks may maintain more than the statutory requirement because they cannot accurately predict deposit movements and need to avoid falling short of the daily requirement.
The RBI has also scheduled an open market operation sale auction of government of India securities worth Rs 25,000 crore on October 13. Such a sale absorbs liquidity as banks and other market participants pay for the securities, adding to the effect of the tighter daily reserve requirement.
The steps come after the central bank announced a 25-basis-point repo rate cut on October 7. The liquidity withdrawal is expected to hasten the transmission of that rate decision through money markets, even as it tightens the availability of funds for banks in the near term.
The RBI’s actions also come amid pressure on prices and the exchange rate linked to the intensifying conflict in West Asia. The immediate operational impact will be felt in banks’ daily cash management and in overnight funding markets. For urban borrowers and businesses, the measures are relevant because changes in banking-system liquidity influence the conditions under which banks price and extend credit, including loans linked to housing, construction and real estate activity.
The CRR change will become operational with the reporting fortnight beginning October 16, while the government securities sale is scheduled for October 13.
