Banks' Cash Balances Fall Short of RBI Mandate Multiple Times in Past Year

An analysis of daily data by the Reserve Bank of India (RBI) has revealed an unusual trend where banks’ average fortnightly cash balances failed to meet the central bank’s mandated Cash Reserve Ratio (CRR) requirement on 15 occasions over the past year.

The shortfall in meeting the fortnightly CRR requirement, a critical regulatory reserve set by the RBI, can be attributed to two main factors, according to sources familiar with the matter.

One factor is the cessation of dispensations granted to certain private banks in 2022, which are no longer in effect. Additionally, reporting discrepancies in CRR maintenance data have contributed to the shortfall, and the RBI aims to rectify this issue, as explained by one of the sources requesting anonymity. Queries sent to the RBI by ET remained unanswered at the time of press.

Daily RBI data on cash reserves of scheduled commercial banks revealed instances from May 19, 2023, to April 19, 2024, where banks’ average cash balances fell short of requirements in 15 fortnights.

Looking back to May 2021, around 30 additional instances of shortfall were observed. The shortfall amounts varied, ranging from ₹44 crore in May 19, 2023, to larger sums like ₹6,820 crore in August 11, 2023.

The CRR, currently set at 4.50% of net demand and time liabilities (NDTL), is a mandated reserve that banks must maintain with the RBI. This reserve serves as a prudential measure and can also influence monetary policy by impacting liquidity in the banking system.

The RBI’s Master Direction on CRR and Statutory Liquidity Ratio, last updated in September 2023, specifies the requirement for banks to maintain a minimum daily balance with the RBI, reflecting a certain percentage of their total NDTL in India.