Mumbai, Oct 12:
The Reserve Bank of India (RBI) has raised the minimum daily cash reserve ratio (CRR) maintenance requirement for scheduled banks from 90% to 99% of the prescribed requirement, effective from October 16, in a move aimed at tightening liquidity in the banking system.
The decision follows a review of prevailing liquidity conditions. The banking system had a liquidity surplus of around Rs 3.88 lakh crore as of October 8, according to the RBI’s reported assessment. The change will require banks to maintain a higher proportion of their prescribed CRR on a daily basis.
The CRR is the proportion of a bank’s net demand and time liabilities that must be maintained as cash reserves with the central bank. By increasing the daily maintenance requirement, the RBI reduces the flexibility available to banks to manage their funds during the reporting fortnight.
The move comes after the central bank raised the policy repo rate by 25 basis points to 5.50%, its first increase in two and a half years, according to reports. The RBI has also announced an open market operation involving the sale of government securities worth Rs 25,000 crore on October 13 to absorb surplus liquidity.
The measures indicate a tighter approach to liquidity management as the central bank seeks to align short-term money-market rates with its policy stance.
For banks, the higher daily CRR requirement could mean less flexibility in deploying funds, while the impact on lending rates and credit availability will depend on broader liquidity conditions and how financial institutions respond.
The RBI’s decisions will be closely watched by banks, businesses and borrowers as the central bank balances liquidity management with the need to maintain stable financial conditions.