Mastering The Vault: RBI's Cash Reserve Ratio And Statutory Liquidity Ratio Compliance Guide For CFOs

Introduction

The Reserve Bank of India's Master Direction on Cash Reserve Ratio ("CRR") and Statutory Liquidity Ratio ("SLR"), 2025 ("Directions") represents a recalibration of the liquidity regulation ecosystem that underpins India's banking stability. This framework aims to consolidate a patchwork of circulars and notifications into a single, coherent directive bringing long-overdue clarity to two of the most foundational prudential tools in RBI's monetary policy arsenal.

For context, the previous framework, the Master Direction on CRR and SLR, 2021 (last updated on December 16, 2024) sought to unify guidance for multiple categories of Regulated Entities ("REs"), including Scheduled Commercial Banks ("SCBs"), Regional Rural Banks ("RRBs"), Small Finance Banks ("SFBs"), Payments Banks, and select co-operative institutions. While the 2021 Direction served its purpose in aligning diverse institutions under one umbrella, it eventually expanded into a voluminous and fragmented text. With repeated amendments and overlapping definitions, it created interpretational ambiguities, operational inefficiencies, and ultimately, compliance friction across institutions of differing scale and risk profiles.

Ambiguities often stemmed from the inconsistent treatment of basic regulatory constructs. Terms such as "cash", "deemed cash", and "approved securities" surfaced in numerous contexts with subtle definitional variations, complicating interpretation and supervisory consistency. Similarly, assets and liabilities like gold borrowings, Upper Tier II instruments, or correspondent banking exposures were treated disparately across circulars, often necessitating cross-references to dated notifications. As liquidity management frameworks evolved—particularly with the rise of the Liquidity Adjustment Facility ("LAF"), the Marginal Standing Facility ("MSF"), and the Facility to Avail Liquidity for Liquidity Coverage Ratio ("FALLCR"), the existing Directions failed to reflect the transformed operational landscape of modern banking.

The 2025 directions aim to address these structural gaps through purposive consolidation. Key features include refined definitions, clearer demarcation of institutional scope (focusing primarily on commercial banks), and rationalised reporting requirements aligned with digital supervision practices. Importantly, it aims to streamline CRR and SLR computation and reporting, enhancing both transparency and regulatory predictability.

From a policy standpoint, this initiative signals the RBI's intent to modernise liquidity management within a unified prudential framework. By shedding legacy overlaps and simplifying the interpretation of reserve requirements, the central bank is not merely pursuing administrative efficiency, it is laying the groundwork for a more data-driven, real-time liquidity oversight regime. This also aligns with the RBI's broader trend toward thematic master directions that favour clarity and convergence over cumulative circularisation.

The critical challenge, however, will lie in ensuring that consolidation does not dilute the flexibility required for differentiated banking models. A narrow commercial bank focus may risk leaving smaller or specialised institutions reliant on transitional circulars, thereby reintroducing fragmentation over time. Effective implementation will, therefore, depend on maintaining a balance between regulatory simplification and the contextual tailoring of supervisory expectations.

For financial executives, these developments mark more than a technical policy update; they redefine the operating environment for liquidity and balance sheet management. With the RBI's renewed focus on digital supervision and real-time data reporting, treasury and compliance teams will need to recalibrate internal systems to ensure both accuracy and responsiveness in reserve maintenance. This shift demands a deeper alignment between finance leadership, risk management, and regulatory affairs, reinforcing the strategic importance of proactive compliance as a cornerstone of financial resilience.

Scope and Applicability

The Directions derive authority from Section 35A of the Banking Regulation Act, 1949 ("BR Act") and Section 42 of the Reserve Bank of India Act, 1934 ("RBI Act"), which together empower the RBI to impose conditions necessary in public interest, including reserve maintenance requirements.

These Directions shall apply exclusively to scheduled commercial banks, in the definition for SLR purposes¹. Standing Deposit Facility (SDF) balances are eligible for SLR but explicitly not eligible for CRR. This is a key detail to avoid errors in reserve accounting. Net Demand and Time Liabilities (NDTL) is central to determining CRR and SLR. NDTL includes:

• Liabilities to the banking system net of assets with the banking system.²
• Liabilities to others in the form of deposits, borrowings, and miscellaneous liabilities.³

Cash Reserve Ratio (CRR)

The banks shall be mandated to maintain an average daily balance of cash reserves with the RBI equal to a defined percentage of their NDTL. The Regulation establishes the following:

• A tiered schedule specifying the applicable CRR percentage with effective dates.
• Computation methodology, including which deposits and borrowings qualify or are exempt from NDTL calculation.
• Bank shall maintain an average daily balance, the amount of which shall not be less than 3.75 per cent (three point seven five per cent), 3.5 per cent (three point five per cent), 3.25 per cent (three point two five per cent) and 3 per cent (three per cent) of its NDTL. The maintenance of at least 90 per cent (ninety per cent) of the CRR daily, with the average over the fortnight meeting 100 per cent (one hundred per cent) compliance.

The non-payment of interest by RBI on the maintained CRR balance underscores the statutory cost of this liquidity mandate. Penalties for shortfalls, which include penal interest charges calculated on the deficiency and fines on responsible officials, emphasise strict enforcement. This two-week delay provides banks with operational flexibility for cash management while ensuring compliance with reserve requirements.

Exemptions from CRR

Scheduled banks are exempted from CRR maintenance on the following liabilities.

• Net inter-bank liabilities, ACU (USD) account balances, Offshore Banking Unit liabilities, Eligible Credit and Long-term Bonds, Market repo borrowings, Certain NRE and FCNR(B) deposits raised in the 2022 window.
• These exemptions shape banks' funding strategies, for instance, issuing long-term bonds for infrastructure can indirectly lower reserve requirements by falling under exempt categories.
• NDTL broadly encompasses deposits, both demand and time deposits and certain borrowings that form the liability base upon which these reserve requirements are calculated. Accurate classification and reporting of liabilities under NDTL are fundamental to regulatory adherence⁴.

A specific percentage of NDTL that a bank must maintain as a cash balance with the RBI, effectively a non-interest-bearing reserve. A prescribed percentage of NDTL is held in the form of liquid assets, including cash, gold, and approved government securities. Approved Securities Central and State Government securities and other instruments as specified by the RBI that qualify for SLR investment.

Statutory Liquidity Ratio (SLR)

Every bank in India, in addition to meeting its CRR obligations, will be mandated by the RBI to maintain specified assets whose value is not less than a certain percentage not exceeding 40 per cent (forty per cent) of its total Demand and Time Liabilities (DTL) as of the last Friday of the second preceding fortnight. This percentage will be notified by RBI from time to time via Official Gazette notifications. As of now, the statutory minimum SLR stands at 18 per cent (eighteen per cent) of a bank's total NDTL⁵.

Eligibility and Composition of SLR Assets

According to the Directions, eligible SLR assets to be maintained by banks shall be required to consistently meet or exceed the mandatory SLR threshold at the close of business on every day. The eligible assets are defined as follows:

• Cash
• Gold valued at not exceeding the prevailing market price
• SLR Securities include:
• Dated Government of India securities
• Treasury Bills issued by the Government of India
• State Development Loans (SDLs) issued by state governments
• Any other instrument as notified by the RBI
• Deposits and unencumbered approved securities, required to be made with RBI under Section 11(2) by banks incorporated outside India
• Excess balances maintained with RBI by scheduled banks over and above what is required for CRR.⁶

Assets acquired from RBI under reverse repo operations also qualify for SLR, provided they are eligible by statute. There are specific conditions under which SLR securities, even if lodged or offered as collateral, are still considered "unencumbered" for SLR calculations:

• Securities lodged with another institution for an advance, to the extent not drawn or availed of
• Securities offered to RBI for liquidity under MSF (up to permissible NDTL percentage) or for FALLCR⁷.

As per the framework, securities held in the Gilt Account with the Clearing Corporation of India Ltd. (CCIL) under the Constituent Subsidiary General Ledger (CSGL), which remain unencumbered at the end of the day, are intended to be eligible for SLR purposes. Repo transactions in government securities are exempted from CRR/SLR calculations; however, securities acquired through such transactions may be eligible for SLR if they qualify under the statutory provisions. Borrowings through repo transactions in corporate bonds or debentures are expected to be treated as liabilities for CRR/SLR computation and may be netted off against the banking book, as per the regulatory treatment. The Direction prescribes that all SLR investments must be maintained in Subsidiary General Ledger (SGL)/ Constituent Subsidiary General Ledger (CSGL) Accounts with RBI, SCB, Primary Dealers (PDs), State Co-op Banks, Stock Holding Corporation of India Ltd. (SHCIL), or in dematerialised accounts with NSDL, CDSL, or NSCCL. Banks are also required to report SDF balances with RBI under "Cash in hand" for SLR maintenance, but these balances will not be eligible for CRR and are exempt from Form A returns⁸.

Marginal Standing Facility (MSF) and SLR Compliance

As per the framework, banks eligible for the MSF can borrow up to 2 per cent (two per cent) of their NDTL at the end of the second preceding fortnight by utilising their SLR securities:

• Borrowing against excess SLR is always permitted.
• If a bank dips below statutory SLR under the MSF scheme, no separate waiver is required; this is an explicit, standing regulatory dispensation

Within the mandatory SLR, government securities allowed by the RBI for MSF are considered Level 1 High Quality Liquid Assets (HQLAs) for Liquidity Coverage Ratio ("LCR") compliance, and banks may also reckon an additional RBI-specified percentage of NDTL within SLR as Level 1 HQLA to support liquidity management for LCR.

Reporting Requirements

The Directions emphasise meticulous reporting obligations and every scheduled commercial bank is required to submit a provisional return in Form A at the close of business on every alternate Friday. This return must be filed electronically with the RBI within seven days of the relevant fortnight to which it relates.

In cases where the reporting Friday falls on a public holiday under the Negotiable Instruments Act, 1881, banks must provide the figures as of the close of business of the preceding working day for the affected offices. Despite this adjustment, the return will be deemed to have been filed for the original Friday. Banks must also submit the final Return in Form A within 20 (twenty) days from the end of the relevant fortnight. This final submission must be accompanied by:

• Memorandum to Form A
• Annex A detailing all foreign currency liabilities and assets, providing a comprehensive view of banks' forex exposures and positions.
• Annex B elaborating on investments in both approved and unapproved securities, including memo items such as subscriptions to shares, debentures, bonds in the primary market, and private placements.

Apart from this, specific guidance is provided on the presentation of Reverse Repo transactions in Form A returns such as:

Penalties and Enforcement

The Directions prescribe a robust penalty framework to ensure compliance. Penal interest on CRR shortfalls is calculated at rates prescribed by the RBI. Monetary fines on bank officials responsible for compliance failures.

• Daily Shortfall Penalty: If an SCBs daily CRR balance falls short of the prescribed minimum, penal interest is levied at a rate of 3 per cent (three per cent) per annum above the Bank Rate on the amount of shortfall for that day. If the shortfall persists on subsequent days, the penal interest rate increases to 5 per cent (five per cent) per annum above the Bank Rate for those additional days.
• Fortnightly Average Shortfall Penalty: In cases where the bank's average CRR during a fortnight is below the prescribed level.

Penalties for default in SLR maintenance

The Directions stipulate that banks that fail to maintain the required SLR on any day are liable to pay penal interest to the Reserve Bank, as provided under Section 24 of the Banking Regulation Act, 1949. Similarly, delays or failure in submitting the mandatory SLR returns attract penalties under Section 46(4) of the Banking Regulation Act, 1949. Repeated and severe defaults may attract stringent sanctions, including possible cancellation of banking licenses. These provisions underscore the RBI's commitment to maintaining the integrity and stability of the banking system⁹.

Deep Implications of RBI's CRR and SLR Master Direction for Banks

The implications for the SCBs will be both operational and strategic. Few implications are given below:

• Balance Sheet & Liquidity: The Direction sets CRR at 3 per cent of NDTL with strict daily and fortnightly floors, while SLR remains at 18 per cent. Though CRR reduction adds liquidity, mandatory CRR and low-yield SLR lock over 20 per cent of deposits in zero/low-return assets, squeezing NIM unless pricing adjusts. NDTL rules now tighten liability classification with 19 exclusions and CRR exemptions, errors risk penalties and restatements. SLR compliance links to LCR and MSF, requiring integrated treasury optimisation across statutory, liquidity, and emergency buffers.
• Enhanced compliance requirements: Banks would need to maintain specified levels of CRR and SLR based on their NDTL, adhering strictly to periodic calculations, reporting, and documentation standards as outlined in the new directions.
• Requirement for robust record-keeping: Accurate and timely submission of statutory returns in Form A for CRR and Form VIII for SLR is essential. Returns must be filed electronically with digital signatures in compliance with IT laws, necessitating robust digital infrastructure and process discipline
• Changes to asset and liability classification: The directions refine the definitions and classifications of demand and time liabilities, demand deposits, approved securities, and exempt categories. Banks must update their policies and related processes accordingly.
• Strategic Levers for Funding and ALM Optimisation: CRR exemptions and SLR recognition of securities across multiple platforms enable strategic funding and portfolio optimisation, such as raising eligible long-tenor bonds or leveraging foreign currency lines to reduce reserve drag. However, repos in corporate bonds still attract CRR/SLR requirements, making capital-market liquidity costly and requiring careful pricing. The MSF facility and its overlap with LCR buffers demand a more quantitative ALM approach, forecasting NDTL, modelling maturities, and sizing usable versus locked reserves under stress.
• Operational, reporting and penalty risk: The Direction introduces an intensive reporting framework requiring frequent submissions of Form A, detailed memoranda, and multiple annexes, along with daily SLR disclosures and special returns on off-cycle Fridays. Complex repo treatments and manual processes heighten operational risk for banks still reliant on spreadsheets. Penalties are stringent, with calibrated interest on CRR shortfalls, fines under the BR Act for SLR lapses, and personal accountability for senior officials in cases of non-compliance.

Following are few essential steps for banks to adapt their operations and ensure strict ongoing compliance:

• Regulatory, policy and methodological work: Do a clause-by-clause gap analysis of CRR/SLR policies vs Direction; clarify ambiguous instruments. Rewrite policies to codify CRR tiers, embed NDTL/SLR definitions, and link to ALM, LCR, MSF, FALLCR. Create controlled calculation engines for NDTL, CRR, SLR—replace manual spreadsheets.
• Systems, data and reporting infrastructure: Upgrade systems to auto-tag liabilities/assets for NDTL, CRR, SLR, and encumbrance. Deploy the reporting engine for Form A, Annexes, and Form VIII with RBI mapping rules. Integrate with RBI CIMS for secure submissions and audit trails.
• Treasury, ALM and liquidity strategy: Re-run ALM models to assess NIM drag, funds transfer pricing adjustments, and optimal SLR mix. Define collateral strategy for MSF/FALLCR and embed in stress tests. Enhance cash-flow forecasting to maintain CRR above 100 per cent without breaching 90 per cent daily floor.
• Governance, controls and people: Set up Reserve Management Committee, Board oversight, and clear Risk and Audit Committees. Include CRR/SLR in risk-based internal audit with periodic reviews. Train Board, treasury, ops, and compliance teams on new rules and RBI expectations.
• Documentation, inspection‑readiness and continuous improvement: Build inspection-ready documentation stack linked to Direction clauses. Run parallel fortnights under old vs new rules to reconcile gaps. Establish ongoing review for policy/system updates to avoid compliance risk.

Conclusion

The RBI Master Direction on CRR and SLR, 2025, consolidates essential regulatory norms that uphold liquidity standards, strengthen financial stability, and facilitate effective monetary policy implementation. At this stage, banks should proactively prepare to integrate these guidelines into their operational and strategic frameworks. This involves enhancing accuracy in reporting, modernising data flows to enable real-time compliance readiness, and embedding reserve management into core governance and risk functions. Looking forward, banks will need to evolve their perspective of CRR and SLR from static compliance requirements to central components of balance-sheet strategy, technology infrastructure, and organisational culture. Proactively pricing reserve requirements into funds transfer pricing and product design, automating daily NDTL/CRR/SLR computations, and improving supervisory transparency will be key focus areas. This forward-looking adaptation reflects RBI's intent to cultivate a resilient banking ecosystem balancing liquidity management with systemic safety, encouraging banks to adopt precision, foresight, and innovation as sustainable competitive advantages rather than regulatory burdens.

Footnotes

1. Para 6(11) of the Reserve Bank of India (Commercial Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Directions, 2025.

2. Para 11 of the Reserve Bank of India (Commercial Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Directions, 2025.

3. Para 11 of the Reserve Bank of India (Commercial Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Directions, 2025.

4. Para 20 of the the Reserve Bank of India (Commercial Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Directions, 2025.

5. Para 24 and 25 of the Reserve Bank of India (Commercial Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Directions, 2025.

6. Para 28 of the Reserve Bank of India (Commercial Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Directions, 2025.

7. Para 28 of the Reserve Bank of India (Commercial Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Directions, 2025.

8. Para 28(6) of the Reserve Bank of India (Commercial Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Directions, 2025.

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