MUMBAI: RBI has tightened daily cash reserve requirements for banks, impounding an additional Rs 1 lakh crore, and has announced a Rs 25,000 crore bond sale, moves that will drain liquidity from the banking system and put upward pressure on overnight money market rates amid pressure on prices as well as the exchange rate from the intensifying conflict in West Asia.The liquidity-draining measure will hasten the transmission of the 25-basis-point repo rate cut announced by the central bank on Oct 7.RBI has raised the minimum daily cash reserve ratio (CRR) requirement from 90% to 99% of the prescribed level, effective from the fortnight beginning Oct 16, 2026. The open market operation (OMO) sale auction of govt of India securities worth Rs 25,000 crore is on Oct 13. Using aggregate deposits of around Rs 284 lakh crore as a rough proxy, the maximum additional daily CRR balance works out to approximately Rs 1 lakh crore (with daily CRR increasing from 3.6% to 3.96% of deposits).Banks are required to maintain a CRR of 4% of their deposits. The statutory ratio remains unchanged, but RBI has reduced the flexibility banks have in meeting the requirement during the fortnight. Previously, banks could maintain at least 90% of the prescribed CRR on each day, provided their average daily balance over the reporting fortnight met the full requirement.Under the revised norms, banks must maintain at least 99% of the prescribed CRR every day while continuing to meet the full requirement on average over the fortnight.This will require banks to keep a larger portion of their deposits with RBI on a daily basis, reducing the funds available to meet short-term liquidity needs. Dealers said that since banks cannot predict the extent of deposits accurately, they need to err on the side of caution to avoid defaulting on CRR and end up maintaining more than the statutory requirement.
