For every ₹100 of deposits your bank holds, roughly ₹3 cannot be lent to anyone. That money sits with the Reserve Bank of India (RBI) and earns nothing. This slice is the cash reserve ratio (CRR), and as on 3 October 2026, the RBI has set it at 3%.
The number looks small. It isn't. A 1 percentage point cut in 2025 was estimated to release about ₹2.5 lakh crore to banks.
What Is Cash Reserve Ratio (CRR)?
The cash reserve ratio meaning, in one line: the share of a bank's deposits that must be kept as cash with the RBI.
The formal cash reserve ratio definition comes from Section 42 of the RBI Act, 1934. Since a 2006 amendment, the RBI can set the ratio at any level, with no legal floor or ceiling.
Two rules set CRR money apart:
• It cannot be lent to borrowers or invested.
• It has earned no interest since the 2006 amendment.
So CRR money sits idle. A higher CRR costs banks, and a lower one frees money to lend.
How Cash Reserve Ratio Is Calculated
CRR is worked out on a bank's net demand and time liabilities (NDTL). NDTL is roughly what the bank owes others: mostly deposits, plus borrowings and other liabilities, net of dealings with other banks.
Required CRR balance = NDTL × CRR rate
Take a hypothetical bank with NDTL of ₹1,00,000 crore:
CRR rate | Kept with the RBI | Remaining after CRR |
4.5% (May 2022 level) | ₹4,500 crore | ₹95,500 crore |
3% (current level) | ₹3,000 crore | ₹97,000 crore |
A 1.5 point gap sounds tiny. For this one bank, it is ₹1,500 crore.
Banks must hold at least 90% of it every day, and the full amount on average across each fortnight.
Why the RBI Raises or Cuts the CRR
Raising CRR locks away more bank cash. Cutting it frees cash up.
The RBI tends to raise CRR during rising inflation, when it wants less money chasing goods. It cuts CRR when banks need more funds to lend, or when cash runs tight.
Decision | Change | Estimated effect |
March 2020 (pandemic) | 4% to 3%, for one year | About ₹1,37,000 crore released |
May 2022 | 4% to 4.5% | About ₹87,000 crore withdrawn |
December 2024 | 4.5% to 4% | About ₹1.16 lakh crore released |
June 2025 (announced) | 4% to 3%, in four steps to November 2025 | About ₹2.5 lakh crore released |
Source: RBI estimates at each announcement.
Since 1973, CRR had not stayed below 4% except during the 2020 emergency. The 2025 cut reached 3% in planned steps, with no crisis forcing it. Between 1989 and 1992, banks had to park 15%.
CRR vs SLR vs Repo Rate
These three often share an RBI statement, but do different jobs.
CRR | SLR | Repo rate | |
What it is | Cash parked with the RBI | Liquid assets banks hold themselves | Rate at which the RBI lends to banks |
Earns interest? | No | Yes, on securities | Not applicable |
Level (as on 3 October 2026) | 3% | 18% | 5.25% |
Source: RBI policy rates.
CRR and the statutory liquidity ratio (SLR) limit how much banks can lend. The repo rate sets what borrowing costs them. The RBI often moves them together. In June 2025, the CRR cut came with a 50 basis point repo rate cut (a basis point is 0.01%).
Also Read: To understand why the RBI adjusts interest rates and how calibrated tightening works, read our guide on Repo Rate Hike: Why Calibrated Tightening Matters.
What a CRR Change Means for Investors
A CRR change hits banks' spare cash first, then spreads.
Bank earnings feel it directly. The RBI Governor estimated the 2025 cut would lift banks' net interest margins (loan income minus deposit costs) by at least 0.07 percentage points. That is why investors tracking the Nifty Bank index watch CRR.
More spare cash tends to ease rates in the money market, where banks lend to each other for short periods.
Sometimes markets move on the day. On 4 May 2022, the RBI raised both the repo rate and CRR. Business Standard reported that the 10-year government bond yield (the return investors earn on that debt) hit 7.37%, and benchmark indices fell 2.3%. With two moves at once, CRR alone cannot take the blame.
CRR is one input among many, alongside global cues and decisions by other central banks.
Also Read: Interest rate changes can also influence derivatives market activity. Explore the Effect of Interest Rate on FnO: Key Insights for Traders to understand the potential implications for futures and options traders.
Conclusion
The cash reserve ratio decides how much bank money cannot be lent. A cut leaves banks more to work with, and a hike leaves them less.
On RBI policy day, check whether CRR changed, and how much money the RBI expects to release or absorb. Note the effective date too, since recent cuts came in stages.
The next test is the MPC meeting decision on 7 October 2026. Read the CRR line beside the repo rate, and you will see whether the RBI is adding cash or taking it out.
