According to reports, banks requested the RBI to relax the daily cash reserve rule.

According to those with knowledge of the situation, Indian lenders have requested additional flexibility from the monetary authorities over the daily cash holdings they must maintain as part of reserve requirements. The Reserve Bank of India requires banks to declare the cash reserve ratio, which is presently 4% of deposits, every two weeks. Currently, banks set aside 90% of this requirement every day. According to the sources, some bankers who met with central bank senior officials on Wednesday proposed reducing this to 80% to 85%. The RBI and bankers met for the second time as the regulator considers updating its liquidity management system in the era of online banking. In light of 24x7 payment systems, banks need to have adequate liquidity on hand to manage unforeseen withdrawals, particularly after overnight money markets close, according to a recent RBI panel study. The RBI spokeswoman did not respond to an email until this report was filed. Indian lenders have requested the Reserve Bank of India (RBI) to provide additional flexibility regarding the daily cash reserve requirement. Currently, banks are required to maintain 90% of the cash reserve ratio (CRR), which is set at 4% of total deposits, on a daily basis. However, some bankers have proposed reducing this daily reserve requirement to between 80% and 85%. This proposal was made during a meeting with senior RBI officials, as the banking sector looks for ways to better manage liquidity in an increasingly digital financial environment. The request comes amid growing concerns over the liquidity management in the era of 24x7 online banking. As payment systems have become available round the clock, banks are finding it increasingly challenging to keep the necessary liquidity to manage unforeseen withdrawals, especially once the overnight money markets close. The recent study conducted by an RBI panel pointed out that banks need more flexibility in their liquidity management to cope with the new demands of digital payments and to ensure smooth operations without compromising financial stability. The RBI has been engaging with banks regularly to discuss possible updates to the liquidity management system. This ongoing dialogue reflects the central bank’s understanding of the evolving needs of the banking sector. Although there has been no official response from the RBI regarding the specific proposal to reduce the daily reserve requirement, the central bank has been injecting liquidity into the system since mid-January to ease the pressure on financial institutions. This willingness to provide support underscores the RBI's commitment to maintaining a balance between financial discipline and the operational needs of banks. The meeting between the RBI and bankers represents the second such engagement as the regulator considers updating its policies to better accommodate the needs of the banking system in a rapidly digitizing economy. As discussions continue, the focus will likely remain on how best to ensure liquidity without disrupting the stability of the financial system, particularly in light of the challenges posed by modern banking practices and the need for a more flexible regulatory framework.