Cash reserve ratio: what the RBI's CRR takes out of lending

What is the cash reserve ratio, and who earns on it?

The cash reserve ratio, or CRR, is the share of a bank's deposits and other liabilities that it must keep with the RBI as cash. Kotak Neo puts the current rate at 3 percent of net demand and time liabilities, which means ₹3 at the RBI for every ₹100 of qualifying liabilities. Those balances earn no interest.

Take ₹1 crore of deposits at a bank. At 3 percent, ₹3,00,000 of it has to sit with the RBI and cannot be lent to anyone. The bank pays you interest on the full ₹1 crore and earns nothing on that ₹3,00,000, so the reserve is a cost the bank carries on every deposit it takes.

The reserve is also a dial. The RBI sets it for every scheduled bank at once, and it decides how much of the system's cash is free to become loans.

What did the RBI actually change?

It changed the daily minimum, and the rate stayed where it was. Circular RBI/2026-27/290 is dated 9 October 2026. It raises the minimum daily CRR maintenance for scheduled banks from 90 per cent to 99 per cent of the required CRR. The text of the circular as reproduced by Taxguru says the average over the reporting fortnight must still not fall below the prescribed CRR.

Compliance is judged on the average over a reporting fortnight. Before the circular, a bank could be well under its requirement on some days, as long as it made up the shortfall on others. That freedom is what narrowed.

We think the loose headline reading, a "99 percent CRR", is wrong in a way that matters. A reader who thinks banks must now park 99 percent of their money with the RBI will picture a credit freeze. Nothing in the circular says that. The requirement on a bank stays 3 percent of its liabilities. What a bank loses is its ability to run that balance low on a Tuesday and catch up on a Friday.

How much room did the old floor give a bank?

A worked example shows it. Take a hypothetical bank with ₹10 lakh crore of qualifying liabilities. At 3 percent its required reserve is ₹30,000 crore.

Under the old 90 percent floor, the lowest it could hold on any single day was ₹27,000 crore, which is 90 percent of ₹30,000 crore. To still average ₹30,000 crore across a fortnight, the other days would run higher. Seven days at ₹27,000 crore and seven at ₹33,000 crore total ₹4,20,000 crore across 14 days. That averages ₹30,000 crore, which was perfectly legal, with a ₹6,000 crore swing between the low days and the high days.

Under the new 99 percent floor, the lowest day is ₹29,700 crore. To average ₹30,000 crore, the remaining days need only run about ₹30,300 crore. Seven days at ₹29,700 crore plus seven at ₹30,300 crore is ₹4,20,000 crore again, so the average holds. The swing is ₹600 crore instead of ₹6,000 crore.

The example is illustrative, not any bank's actual books. It shows the point: the average requirement did not move, and the room to manoeuvre inside it shrank to a tenth.

Why does a tighter floor take cash out of lending?

Because banks manage uncertainty with that slack. A bank does not know on Monday how many withdrawals, loan disbursals and government payments will land by Thursday. The old floor let it lend more cash out in the good days and top up the reserve at the end of the fortnight.

With little slack left, a bank that wants to stay safely above 99 percent every day tends to hold more than the minimum. Kotak Neo expects higher daily requirements could push average balances up by 5 to 10 percent, absorbing a further ₹40,000 crore to ₹80,000 crore of liquidity. That is an estimate from one source and not an RBI figure.

For scale, Kotak Neo puts the banking system's liquidity surplus at ₹3.88 lakh crore. It says the reserve burden would reach roughly ₹8 lakh crore if banks kept the full CRR. Against a surplus of that size, the tightening is real but is not a drain of the whole pool. Cash that was free to lend overnight now sits at the RBI earning nothing. There is less of it to bid for loans and bonds.

Why did the 10-year bond yield move?

Because the CRR change was one of three RBI actions that point the same way. The RBI also announced a ₹25,000 crore sale of government securities, an open market operation. It had raised the repo rate by 25 basis points to 5.50 percent on 7 October 2026, according to the Free Press Journal's account of the sequence. Each one takes money out of the system or makes it cost more.

On 12 October 2026 the benchmark 10-year government bond yield rose 10 basis points to 7.40 per cent, as ANI reported. A rising yield means bond prices fell: holders of existing bonds with lower coupons found them worth less, because new money wanted a higher return. Our explainer on what the 10-year bond yield is covers why a move reprices a portfolio. The OMO side is in what an RBI open market operation does.

Our view is that the mix of actions is the story, more than the CRR change alone. A tighter floor by itself is a modest tweak. A tighter floor, a bond sale and a rate increase arriving together tell the market that the RBI wants less cash around, and bond buyers priced that in at once. It would be wrong to credit the whole yield move to one circular.

Is this the same as a CRR hike?

No, and the difference decides how much to read into it. A CRR rate hike from 3 to 4 percent would raise the required reserve itself. For the hypothetical bank that is ₹30,000 crore going to ₹40,000 crore, felt by every bank on every day. The floor change leaves the ₹30,000 crore where it is and removes the room to run under it.

The burden is uneven. Kotak Neo notes that banks with thin liquidity buffers feel more pressure than those with ample reserves, and that the effect on net interest margins may be modest.

What does it mean for a portfolio you already hold?

It tells you that the plumbing under every asset you own is adjustable and that the RBI adjusts it often. A bank stock, a bond holding and a rupee deposit all sit on the same pool of cash. When the pool shrinks, prices re-set.

What a portfolio can do about it is separate from guessing the next lever. We hold that a written allocation is the sensible answer to liquidity news. It states in advance what share each asset class gets and when it is reviewed, so it needs no view on this circular. Say three percent of a ₹1 crore portfolio is meant to sit in a crypto sleeve. That is ₹3,00,000 whether banks must hold 90 percent or 99 percent of their reserve on a given day. The allocation does the deciding that headlines tempt you to redo.

Qatobit works the same way on its own side. The QSI indices rebalance monthly on a published methodology, so a written rule decides each rebalance. A crypto index carries market risk like any other, and no custody arrangement removes it. If crypto belongs in your allocation, you can invest in QSI Growth or start a Bitcoin SIP on the same schedule logic. Liquidity that thins out behaves in ways covered in what liquidity is and what it looks like on a bad day. The rate lever the RBI pulled on 7 October 2026 has its own piece: what a repo rate hike passes through to a portfolio.

Frequently asked questions

What is the cash reserve ratio in India?

It is the share of a bank's net demand and time liabilities that it must keep with the RBI as cash, earning no interest. Kotak Neo puts it at 3 percent as of 12 October 2026, which means ₹3 with the RBI for every ₹100 of qualifying liabilities.

Did the RBI raise the CRR to 99 percent?

No. Circular RBI/2026-27/290, dated 9 October 2026, raises the minimum daily maintenance from 90 per cent to 99 per cent of the required CRR. It applies from the reporting fortnight beginning 16 October 2026. The CRR rate itself stays at 3 percent.

Why does the daily floor matter if the average is unchanged?

The floor removes slack. A bank that could run at 90 percent on some days and make it up later must now stay at 99 percent or above every day. In the example of a bank with ₹30,000 crore of required reserve, the lowest permitted day moves from ₹27,000 crore to ₹29,700 crore.

How does a CRR change affect bond yields?

A tighter reserve rule leaves less free cash in the banking system, so less money bids for government bonds and loans. ANI reported the benchmark 10-year yield rising 10 basis points to 7.40 per cent on 12 October 2026. An OMO sale and a repo rate increase came with it, so the CRR change is one part of that move.

Does the CRR change affect my savings or deposits?

The circular changes how banks hold reserves and says nothing about deposit safety. Banks may feel a small funding cost, which Kotak Neo estimates at 1 to 2 basis points, and some could pass part of it into lending rates.

Crypto investments are subject to market risk. Not financial advice.