RBI tightens liquidity after rate rise, raises daily CRR maintenance to 99%
Mumbai, Oct 9, 2026
The RBI raised minimum daily CRR maintenance to 99 per cent from October 16 and announced a ₹25,000 crore bond sale on October 13 to align overnight rates with the repo rate.
After increasing the policy repo rate for the first time in two and a half years earlier this week, the Reserve Bank of India has increased the minimum daily maintenance of the cash reserve ratio (CRR) from 90 per cent of the requirement to 99 per cent, effective from the fortnight beginning October 16, 2026.
The last time such a stringent CRR requirement was imposed was in July 2013, amid heightened volatility in the foreign exchange market due to the US Federal Reserve’s so-called ‘taper tantrum’.
CRR is the proportion of deposits that banks need to park with the central bank as cash, and they do not earn any interest on their CRR balance with the RBI.
Banks will be required to maintain not less than 99 per cent of the required CRR on all days during the reporting fortnight, such that the average of the daily CRR maintained shall not be less than the prescribed CRR of 3 per cent.
The move will reduce banks’ flexibility to manage their daily liquidity needs, which will eventually tighten the financial markets.
Additionally, the central bank announced an open market operation (OMO) involving bond sales worth ₹25,000 crore to absorb excess liquidity on October 13. The liquidity surplus — measured by the amount banks parked in the RBI’s liquidity adjustment facility window — was ₹3.88 trillion.
These steps are aimed at aligning the policy repo rate, which is at 5.5 per cent, with the overnight rate, namely the weighted average call rate (WACR) — the operating target of monetary policy.
On Friday, the WACR was at 5.31 per cent, compared with 5.3 per cent on Thursday — closer to the lower end of the rate corridor. The standing deposit facility, at 5.25 per cent, is the floor of the corridor, while the marginal standing facility, at 5.75 per cent, is the ceiling.
The WACR has, on average, traded 14 basis points below the policy repo rate since the August review of monetary policy.
During his monetary policy statement on Wednesday, RBI Governor Sanjay Malhotra said that going forward, the Reserve Bank will use an appropriate mix of liquidity management tools and strive to align the weighted average call rate (WACR) with the policy repo rate.
The central bank last raised the minimum daily CRR maintenance requirement to 99 per cent in July 2013, amid volatility in the foreign exchange market. The requirement was subsequently lowered to 95 per cent in September 2013 and further reduced to 90 per cent in April 2016.
Bankers said that the increase to 99 per cent will reduce banks' flexibility in managing their funds on a daily basis, requiring them to maintain a higher proportion of the prescribed reserves with the RBI each day.
“The move will leave banks with less funds available for other uses. However, the overall impact may be limited as banks have generally been maintaining CRR balances of more than 95 per cent of the prescribed requirement,” said a senior banker with a state-owned bank.
The RBI said the decision to sell bonds through OMOs was taken after reviewing current and evolving liquidity conditions.
The auction will be conducted through the multiple-price method, with six government securities maturing between 2030 and 2034 on offer. The RBI has not specified a separate notified amount for individual securities.
The RBI will decide the amount of each security to be sold and reserves the right to accept bids for less than the notified aggregate amount or reject bids, either wholly or partially.
The RBI sold government securities worth ₹1 trillion through OMOs in September, in three tranches of ₹50,000 crore on September 17 and ₹25,000 crore each on September 21 and September 28, to absorb surplus rupee liquidity.
Meanwhile, banks parked ₹18,170 crore at the RBI’s 10-day variable rate reverse repo (VRRR) auction. Market participants said that weak demand for longer-tenure VRRR auctions could be due to the lack of an additional return for locking in funds for longer periods. The response to the three-day VRRR auction was better, with banks parking almost ₹1.4 trillion against a notified amount of ₹1.5 trillion.
“With the maximum rate at 5.49 per cent across tenures of one to 29 days, banks may be reluctant to commit funds for longer periods without a term premium,” said a senior banker with a private bank.
The central bank plans to conduct a three-day VRRR auction worth ₹2 trillion on Monday.
[The Business Standard]
