On Friday, June 6, 2025, the Reserve Bank made the decision to drastically reduce the Cash Reserve Ratio (CRR) by 1%. This will allow the banking system to lend ₹2.5 lakh crore to the economy’s productive sectors.
The CRR would drop to 3% after the reduction in four equal tranches concluding November 29, 2025. This implies that in order for the commercial banks to have more money available for lending, the RBI would need them to keep a lower level of 3% in liquid cash form. “The Reserve Bank remains committed to provide sufficient liquidity to the banking system. To further provide durable liquidity, it has been decided to reduce the cash reserve ratio (CRR) by 100 basis points (bps) to 3 per cent of net demand and time liabilities (NDTL) in a staggered manner during the course of the year,” RBI Governor Sanjay Malhotra said, while announcing the bi-monthly MPC outcome.
According to him, this cut will be implemented in four equal installments of 25 basis points each, starting in the two weeks starting September 6, October 4, November 1, and November 29, 2025. “The cut in CRR would release primary liquidity of about ₹2.5 lakh crore to the banking system by December 2025. Besides providing durable liquidity, it will reduce the cost of funding of the banks, thereby helping in monetary policy transmission to the credit market,” he said.
Increased credit flow will support economic growth, which in FY’25 fell to a four-year low of 6.5%. “I would like to reiterate that we will continue to monitor the evolving liquidity and financial market conditions and proactively take further measures, as warranted,” he said.
The RBI last reduced CRR by 50 basis points to 4% in the MPC announcement from December 2024. It was carried out in two equal installments of 25 basis points each, starting the two weeks of December 14, 2024, and December 28, 2024. The action eased the liquidity problem and unlocked Rs 1.16 lakh crore to the banking system.
In an off-cycle Monetary Policy Committee (MPC) meeting on May 4, 2022, the RBI increased CRR from 4% to 4.5%, effective May 21 of the same year. However, the RBI kept the Statutory Liquidity Ratio (SLR) at 18 percent and made no changes to it.
SLR is a regulatory requirement that requires banks to hold 18 per cent of total deposits or net demand and time liabilities (NDTL) in government securities. This ensures that banks have sufficient liquidity to meet customer withdrawal demands and maintain financial stability. On the liquidity situation, Malhotra said, a total amount of Rs 9.5 lakh crore of durable funds has been injected into the banking system since January.
As a result, liquidity conditions changed from being in deficit since mid-December to surplus by the end of March. This is also demonstrated by the large Standing Deposit Facility (SDF) holdings, which averaged ₹2 lakh crore per day in April and May, and the lacklustre reaction to daily Variable Repo Rate (VRR) auctions.
The weighted average call rate (WACR), the monetary policy’s operating aim, has been trading near the lower end of the LAF corridor since the last policy, he noted, reflecting the improvement in liquidity conditions. According to him, the banking system’s comfortable liquidity surplus has strengthened the transmission of policy repo rate decreases to short-term rates. “However, we are yet to see a perceptible transmission in the credit market segment, though we must keep in mind that it happens with some lag,” he said.
