Current Context: On 9 October 2026, the Reserve Bank of India (RBI) announced an increase in the minimum daily Cash Reserve Ratio (CRR) maintenance requirement from 90% to 99%, effective 16 October 2026. The decision follows a review of prevailing liquidity conditions and aims to absorb surplus liquidity from the banking system and strengthen monetary policy transmission.
- RBI Circular: RBI/2026-27/290, issued under Section 42(1) of the RBI Act, 1934.
- Applicability: The revised requirement applies to all scheduled banks.
- Existing CRR Rate: The actual CRR remains unchanged at 3% of Net Demand and Time Liabilities (NDTL).
- Fortnightly Requirement: Banks must maintain an average CRR balance equal to 100% of the prescribed requirement during the reporting fortnight.
- CRR Definition: CRR is the percentage of a bank's NDTL that must be maintained as cash balances with the RBI.
- Interest: RBI does not pay interest on CRR balances maintained by banks.
- Impact on Banks: The revised rule reduces banks' flexibility to manage daily cash balances and compensate for shortfalls on subsequent days.
- Liquidity Position: The banking system had surplus liquidity of approximately ₹4 lakh crore when the decision was announced.
- Related OMO Operation: RBI announced the sale of government securities worth ₹25,000 crore on 13 October 2026 to absorb excess liquidity.
- Monetary Policy: The repo rate was recently increased by 25 basis points to 5.50%. Tighter liquidity conditions are intended to bring overnight money-market rates closer to the policy rate.
Question:
Q1. What is the main objective of RBI's decision to increase the minimum daily CRR maintenance requirement to 99%?
a) To increase bank lending capacity
b) To reduce the statutory CRR rate
c) To absorb surplus liquidity and strengthen monetary policy transmission
d) To increase interest payments on CRR balances
Answer: c) The tighter daily maintenance requirement limits banks' ability to temporarily draw down their RBI reserve balances, helping manage excess liquidity and align short-term market interest rates with the policy rate.
