In short: The Reserve Bank of India (RBI) is tightening the money supply by requiring banks to maintain 99% of their Cash Reserve Ratio (CRR) on a daily basis, up from 90%. Additionally, the central bank will sell ₹25,000 crore in government bonds on 13 October 2026 to drain excess cash from the banking system.

What is the new CRR maintenance requirement?

The Reserve Bank of India has modified the rules regarding how banks manage their cash reserves. Under the Reserve Bank of India Act, 1934, banks are required to keep a specific percentage of their deposits with the central bank, known as the Cash Reserve Ratio (CRR). While the statutory CRR rate itself remains unchanged at 4%, the RBI has significantly reduced the flexibility banks have in meeting this requirement daily.

Previously, banks were allowed to maintain a minimum of 90% of their required CRR on any given day, provided they met the full 4% average over a two-week period (reporting fortnight). Starting from the fortnight beginning 16 October 2026, banks must now maintain at least 99% of their prescribed CRR every single day.

  • Impact on Liquidity: This change is expected to lock away approximately ₹1 lakh crore of additional daily liquidity that would otherwise be available for banks to use.
  • Operational Caution: Because banks cannot always predict their exact deposit levels, they may end up keeping even more than the required amount to avoid defaulting on this stricter 99% daily floor.
  • Reduced Flexibility: Banks will have less room to manage short-term cash needs using their reserve balances.

The ₹25,000 crore bond sale (OMO)

In a separate move to manage the money supply, the RBI announced an Open Market Operation (OMO) sale. On 13 October 2026, the central bank will auction government securities worth ₹25,000 crore. When the RBI sells these bonds to banks, it takes rupees out of the system, effectively "draining" liquidity.

The auction includes six different government securities with maturity dates ranging from March 2030 to April 2034. These include:

  • 7.88% GS 2030
  • 6.10% GS 2031
  • 7.95% GS 2032
  • 7.26% GS 2033
  • 7.18% GS 2033
  • 7.10% GS 2034

The RBI has the discretion to decide how much of each specific security to sell and can accept or reject bids without providing a reason.

Why is the RBI draining liquidity now?

As of 8 October 2026, the banking system had a massive liquidity surplus estimated at ₹3.88 lakh crore. This surplus was caused by several factors, including the heavy mobilisation of Foreign Currency Non-Resident (Bank) deposits and significant government spending on salaries and pensions at the end of the month.

RBI Governor Sanjay Malhotra indicated that this excess liquidity needs to be absorbed within the current financial year. There are several strategic reasons for these moves:

  • Rate Transmission: The RBI wants to ensure that the 25-basis-point repo rate cut announced on 7 October 2026 is properly reflected across the economy.
  • External Pressures: Intensifying conflict in West Asia is putting pressure on prices and the exchange rate, making it necessary to keep a tighter grip on the money supply.
  • Market Rates: By removing excess cash, the RBI aims to align overnight money market rates more closely with the official repo rate.

Who is affected and what should you do?

These measures primarily affect commercial banks, which must now adjust their daily cash management strategies to comply with the 99% maintenance rule. For the general public, there is no direct action required, but these technical changes often influence broader economic conditions:

  • Borrowers: The move is designed to help the recent repo rate cut "transmit" to the market, though the tightening of liquidity can also put upward pressure on short-term market interest rates.

Frequently asked questions

Does the 4% CRR rate change?

No, the statutory CRR remains at 4% of deposits. Only the daily minimum maintenance requirement has been raised from 90% to 99%.

When does the new 99% CRR rule start?

The new requirement becomes effective from the reporting fortnight that begins on 16 October 2026.

What is an OMO sale?

An Open Market Operation (OMO) sale is when the RBI sells government bonds to banks. This process withdraws cash from the banking system in exchange for securities.

Sources

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