There have been stricter maintenance rules put in place by the Reserve Bank of India (RBI) concerning the daily cash reserve ratio (CRR). According to an announcement on Friday, the 99% level will henceforth be maintained daily concerning the CRR. Previously, the 90% level was maintained. The new regulation will take effect from October 16.

Such a decision will greatly limit the ability of banks to lower their reserve balances in any given day. No changes have been made concerning the total CRR level. The effect of such a regulation will be determined depending on the cash balance held by the banks and the manner in which they manage their treasury. If banks are running very close to the minimum reserve requirement, there will be a need for adjustments regarding their daily cash management. This decision follows RBI Governor Sanjay Malhotra's statement on October 7, where he stated that excess liquidity in the banking system is expected to gradually decrease over the remainder of the fiscal year.

Under the current system, banks are required to maintain an average balance equal to the prescribed CRR over a fortnight. They were allowed to maintain at least 90% of this requirement on any given day. Under the new rule, this daily limit has been increased to 99%. This will require banks to maintain almost the full CRR every day. This will make the central bank's monetary policy more effective.

During August and September, liquidity in the banking system increased due to strong capital inflows, including funds raised through the RBI's special Foreign Currency Non-Resident Bank (FCNR-B) deposit facility. However, excess liquidity has declined in recent weeks. This reduction was driven by variable rate reverse repo (VRRR) auctions and bond sales under open market operations (OMOs). Average daily excess liquidity was ₹5.9 lakh crore in August. According to the latest data, it has fallen to ₹3.92 lakh crore.

The central bank will continue to closely monitor liquidity conditions. It will continue to use appropriate tools as needed, including VRRR auctions, to maintain liquidity in the financial system. Dollar-rupee sell-buy swaps and OMO operations are also part of these tools. This will ensure adequate liquidity in the market.

There have been stricter maintenance rules put in place by the Reserve Bank of India (RBI) concerning the daily cash reserve ratio (CRR). According to an announcement on Friday, the 99% level will henceforth be maintained daily concerning the CRR. Previously, the 90% level was maintained. The new regulation will take effect from October 16.

Such a decision will greatly limit the ability of banks to lower their reserve balances in any given day. No changes have been made concerning the total CRR level. The effect of such a regulation will be determined depending on the cash balance held by the banks and the manner in which they manage their treasury. If banks are running very close to the minimum reserve requirement, there will be a need for adjustments regarding their daily cash management. This decision follows RBI Governor Sanjay Malhotra's statement on October 7, where he stated that excess liquidity in the banking system is expected to gradually decrease over the remainder of the fiscal year.

Under the current system, banks are required to maintain an average balance equal to the prescribed CRR over a fortnight. They were allowed to maintain at least 90% of this requirement on any given day. Under the new rule, this daily limit has been increased to 99%. This will require banks to maintain almost the full CRR every day. This will make the central bank's monetary policy more effective.

During August and September, liquidity in the banking system increased due to strong capital inflows, including funds raised through the RBI's special Foreign Currency Non-Resident Bank (FCNR-B) deposit facility. However, excess liquidity has declined in recent weeks. This reduction was driven by variable rate reverse repo (VRRR) auctions and bond sales under open market operations (OMOs). Average daily excess liquidity was ₹5.9 lakh crore in August. According to the latest data, it has fallen to ₹3.92 lakh crore.

The central bank will continue to closely monitor liquidity conditions. It will continue to use appropriate tools as needed, including VRRR auctions, to maintain liquidity in the financial system. Dollar-rupee sell-buy swaps and OMO operations are also part of these tools. This will ensure adequate liquidity in the market.