RBI Aligns Local Area Bank CRR-SLR Rules with Scheduled-Bank Framework After Second Schedule Inclusion
Local Area Banks (LABs) that become scheduled banks now have clearer Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) rules to follow. The Reserve Bank of India's amendment dated September 11, 2026 brings the relevant scheduled-bank provisions into the Local Area Bank directions, with immediate effect.
The change follows a Local Area Bank's inclusion in the Second Schedule to the RBI Act, 1934. It covers reserve balances, exemptions and the consequences of a shortfall. It does not announce a fresh, across-the-board CRR or SLR rate change for all Indian banks.
What changes in reserve maintenance
New paragraph 8A sets out the scheduled-bank CRR schedule: 3.75%, 3.5%, 3.25% and 3.0% of net demand and time liabilities for the reporting fortnights beginning September 6, October 4, November 1 and November 29, 2025, respectively. These are dates in 2025 reproduced in the September 2026 amendment; they are not a new series of rate cuts starting in September 2026. The paragraph refers to liabilities at the end of the second preceding fortnight.
Paragraph 8B adds a separate daily test. A scheduled bank must maintain at least 90% of the required CRR on every day of the reporting fortnight. It must also meet the full prescribed requirement on a fortnightly-average basis. Passing the daily test alone is insufficient.
A simple treasury-control example
Suppose a bank's required CRR balance is ₹30 crore. The 90% daily minimum is ₹27 crore. Keeping ₹27 crore every day would meet that daily floor, but the average would still be only ₹27 crore, leaving the ₹30 crore average requirement unmet. This is an illustration of the two tests, not a calculation of any particular bank's reserve requirement.
A useful daily report should therefore show both the day's balance against the minimum and the running average against the full requirement. The amendment also inserts paragraph 7A, which records RBI's power to require incremental CRR through a Gazette notification. It does not itself specify a new incremental-CRR levy.
Check the liability categories before applying an exemption
The new scheduled-bank provisions cover the prescribed netting of banking-system liabilities and assets, credit balances in Asian Clearing Union (ACU) US-dollar accounts, and borrowing through market repo against Government securities. The market-repo category is also addressed in the SLR exemption provision. The SLR text additionally recognises RBI balances held by a scheduled LAB above its Section 42 requirement.
For implementation, map each eligible balance to the precise paragraph in the directions. Do not treat all interbank or foreign-currency balances as automatically exempt. The amendment also addresses the demand/time split of savings deposits using the September 30 and March 31 positions.
A continuing shortfall costs more
Under the revised paragraph 37, a scheduled LAB's daily CRR shortfall attracts penal interest at an annual rate of three percentage points above Bank Rate, charged on the shortfall for that day. If the shortfall continues on succeeding days, the annual rate rises to five percentage points above Bank Rate. A shortfall in the fortnightly average is dealt with separately under Section 42(3) of the RBI Act.
Where the increased penalty becomes payable and the default continues into the next fortnight, paragraph 38A provides for fines for directors, managers or secretaries knowingly and wilfully involved. RBI may also prohibit fresh deposits; breaches of that prohibition can attract further fines under the conditions set out in the paragraph. Treasury teams should escalate an actual shortfall promptly and distinguish daily, average and continuing defaults when assessing the consequences.
Official source: RBI notification RBI/2026-27/255, dated September 11, 2026
Key takeaway
For an affected LAB, the immediate control checks are its scheduled-bank classification, the correct liability base, the daily CRR floor and the fortnightly average. Review them together; a daily balance above the minimum does not by itself establish full compliance.
