RBI Raises Cash Reserve Ratio: What It Means for Banks and Liquidity

The Reserve Bank of India has announced a significant increase in the cash reserve ratio (CRR) from 90% to 99%, effective October 16. This decision aims to address the current surplus liquidity in the banking system, which has been a concern due to heavy foreign currency deposits and government expenditures. The RBI's measures, including VRRR auctions and bond purchases, are part of a broader strategy to manage liquidity effectively. Governor Sanjay Malhotra has indicated that this surplus is not expected to last beyond FY27, although raising the CRR is not the preferred solution. This article explores the implications of this change for banks and the overall economy.

By Narendra Chaudhary Oct 9, 2026, 21:37 IST

RBI's New Directive on Cash Reserve Ratio

Mumbai: The Reserve Bank of India (RBI) announced on Friday that starting October 16, banks will be required to maintain 99% of the mandated cash reserve ratio (CRR) daily, an increase from the current 90%.

This adjustment comes after a thorough assessment of the existing liquidity situation within the banking sector.

The RBI stated, "Following a review of the current liquidity conditions, it has been decided to raise the minimum daily maintenance of the CRR from 90% to 99%, effective from the fortnight beginning October 16, 2026."

Currently, scheduled banks must keep at least 90% of the required CRR on all days throughout a fortnight, ensuring that the average daily CRR meets the prescribed levels set by the RBI.

This change aims to mitigate the surplus liquidity in the banking system, which was approximately Rs 3.88 lakh crore as of October 8.

Over the past two months, the RBI has implemented various measures to absorb excess liquidity, including conducting Variable Rate Reverse Repo (VRRR) auctions and purchasing bonds through open market operations.

Earlier this week, RBI Governor Sanjay Malhotra indicated that the surplus liquidity is unlikely to persist beyond the end of FY27, although he noted that increasing the CRR is not the preferred approach.

The banking sector has experienced an influx of liquidity due to significant mobilization of FCNR(B) deposits, which introduced foreign currency into the system, while subsequent swaps with the RBI provided rupee liquidity to banks.

In addition to FCNR(B) inflows, government expenditures at month-end, including salary and pension payments, have also contributed to the liquidity in the banking system.