RBI Increases Daily Cash Reserve Ratio Requirement to 99%
Effective October 16, the Reserve Bank of India mandates banks to maintain a daily cash reserve ratio of 99%, tightening liquidity management.
RBI raises daily CRR maintenance requirement from 90% to 99%.
The change aims to enhance liquidity management in the banking sector.
Current liquidity surplus in the banking system is approximately Rs 3.92 lakh crore.
On October 9, the Reserve Bank of India (RBI) announced a significant adjustment to the cash reserve ratio (CRR) requirements for banks, raising the minimum daily maintenance requirement from 90% to 99%. This new regulation will take effect from the fortnight starting October 16. The adjustment is designed to tighten liquidity management within the banking system, limiting banks' ability to dip below their prescribed reserve requirements on a daily basis.
Historically, banks have been permitted to maintain at least 90% of their prescribed CRR daily, allowing them some flexibility to manage their reserves over the reporting fortnight. However, with the new requirement, banks will need to adhere more strictly to daily maintenance levels, which may affect their operational flexibility. The RBI's decision follows comments from Governor Sanjay Malhotra during the monetary policy review on October 7, indicating that surplus liquidity in the banking system was expected to ease naturally in the coming months.
The RBI has clarified that this change does not alter the overall CRR ratio but rather tightens the daily maintenance requirement. According to Gaura Sengupta, chief economist at IDFC First Bank, this move is intended to keep liquidity conditions tighter on a daily basis. Currently, banks maintain 90% of the required CRR in one week and compensate in the following week, as long as the average over the 15-day reporting period meets the 100% requirement. The increase to 99% will limit this flexibility, although it is not expected to lead to a significant liquidity drain.
The liquidity surplus in the banking system has seen a notable increase in recent months, particularly in August and September, due to capital inflows and the RBI's special foreign currency non-resident bank deposit facility. However, this surplus has since moderated following the central bank's variable rate reverse repo auctions and open market operations. As of the latest data, the average daily surplus under the liquidity adjustment facility (LAF) has been approximately Rs 5.9 lakh crore, with the current liquidity surplus standing at Rs 3.92 lakh crore.
Looking ahead, the RBI has committed to continuously assessing liquidity conditions and utilizing available instruments as necessary, including VRRR auctions and OMO operations. This proactive approach aims to ensure that liquidity management remains effective in the face of changing economic conditions.
