--- title: "RBI Amends CRR and SLR Directions for Local Area Banks: Key Compliance Requirements for 2026 " date: 2026-10-29 author: "King Stubb & Kasiva" url: https://ksandk.com/newsletter/rbi-amends-crr-and-slr-directions-for-local-area-banks-key-compliance-requirements-for-2026/ --- # RBI Amends CRR and SLR Directions for Local Area Banks: Key Compliance Requirements for 2026  Posted On - 29 October, 2026 • By - King Stubb & Kasiva ## **Introduction** On 11 September 2026, the Reserve Bank of India (RBI) issued the *Reserve Bank of India (Local Area Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Second Amendment Directions, 2026*, under reference RBI/2026-27/255 (DOR.RET.REC.220/12.01.001/2026-27). The amendment took effect immediately and modifies the *Reserve Bank of India (Local Area Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Directions, 2025*, dated 28 November 2025.  The amendment follows the inclusion of a Local Area Bank in the Second Schedule to the Reserve Bank of India Act, 1934. It incorporates provisions applicable to scheduled banks into the existing framework governing Local Area Banks, particularly in relation to Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), exemptions and penalties for non-compliance.  The Directions have been issued under Section 35A of the Banking Regulation Act, 1949, read with Section 42 of the Reserve Bank of India Act, 1934, and Sections 18 and 24 of the Banking Regulation Act, 1949.  ## **Key Regulatory Amendments** ### **1. Incremental CRR and Minimum Daily CRR Maintenance** The amendment introduces Paragraph 7A, empowering the RBI to require scheduled banks to maintain an additional average daily balance with the RBI, over and above the CRR balance otherwise required under Section 42(1) of the Reserve Bank of India Act, 1934. The additional balance is calculated with reference to the increase in a bank’s net demand and time liabilities (NDTL) over the benchmark specified in the relevant RBI notification.  Paragraph 8B further requires every scheduled bank to maintain at least 90% of its prescribed CRR on each day during the reporting fortnight, while ensuring that the average daily balance maintained over the fortnight meets the prescribed CRR requirement.  These provisions strengthen the monitoring of reserve maintenance by scheduled banks, including scheduled Local Area Banks.  ### **2. Calculation of Demand and Time Liabilities for Savings Deposits** Paragraph 15A clarifies the treatment of savings bank deposits for calculating the proportion of demand liabilities and time liabilities by scheduled banks. The existing method, based on the position at the close of business on 30 September and 31 March each year, continues to apply, with interest on savings bank deposits calculated on a daily-product basis.  This provision maintains the prescribed periodic calculation methodology while clarifying the treatment of interest on savings deposits.  ### **3. Exemptions from CRR and SLR Requirements** The amendment introduces Paragraph 16A, specifying categories of liabilities exempt from CRR for scheduled banks. These include:  - Net liabilities to the banking system, calculated in accordance with Section 42(1) of the Reserve Bank of India Act, 1934;  - Credit balances in Asian Clearing Union (ACU) US-dollar accounts; and  - Funds borrowed under market repo transactions against Government securities.  The amendment also provides that funds borrowed under market repo transactions against Government securities are exempt from SLR requirements. In addition, corresponding changes clarify the treatment of excess balances maintained by a scheduled Local Area Bank with the RBI for the purposes specified under the Directions.  These exemptions are subject to the precise conditions and scope set out in the amended provisions.  ### **4. Penal Interest and Consequences of CRR Shortfalls** The amendment substitutes Paragraph 37 to clarify the penal interest applicable to CRR shortfalls. For scheduled Local Area Banks, a shortfall in the prescribed daily CRR attracts penal interest at 3% per annum above the Bank Rate on the amount of the shortfall. If the shortfall continues on the succeeding day or days, the penal interest increases to 5% per annum above the Bank Rate.  Where a scheduled Local Area Bank fails to maintain the prescribed CRR on an average basis during a reporting fortnight, penal interest is recoverable in accordance with Section 42(3) of the Reserve Bank of India Act, 1934. Non-scheduled Local Area Banks remain subject to the applicable penalty provisions under Section 18(1A) of the Banking Regulation Act, 1949.  The newly inserted Paragraph 38A further addresses continued defaults by scheduled banks. Where the default continues into the succeeding fortnight after the prescribed penal interest becomes payable, the provision sets out potential consequences for directors, managers and secretaries who are knowingly and wilfully party to the default. It also empowers the RBI, in the circumstances specified, to prohibit the scheduled bank from accepting fresh deposits.  ## **Conclusion** The *Reserve Bank of India (Local Area Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Second Amendment Directions, 2026* align the applicable reserve-maintenance framework for scheduled Local Area Banks with the relevant provisions governing scheduled banks. The amendments address incremental CRR, minimum daily reserve maintenance, savings deposit calculations, specified CRR and SLR exemptions, and penalties for reserve shortfalls.  Local Area Banks should review the amended Directions alongside the principal Directions dated 28 November 2025 and ensure that their treasury, reporting and compliance procedures reflect their scheduled or non-scheduled status. Particular attention should be given to daily CRR monitoring, the treatment of exempt liabilities and the consequences of continuing reserve shortfalls. *Last Updated on 28 October, 2026* Get King Stubb & Kasiva’s legal updates in your Google feed[![Add King Stubb & Kasiva as a preferred source on Google](https://ksandk.com/wp-content/uploads/google_preferred_source_badge_light_en@2x.png)](https://www.google.com/preferences/source?q=https://ksandk.com/) --- ## Office Locations - [New Delhi](https://ksandk.com/locations/top-corporate-law-firm-in-delhi/) (HQ): +91-11-41318190 | info@ksandk.com - [Mumbai](https://ksandk.com/locations/top-corporate-law-firm-in-mumbai/): 3 offices (Nariman Point, Lower Parel, Andheri) | mumbai@ksandk.com - [Bangalore](https://ksandk.com/locations/top-corporate-law-firm-in-bangalore/): bangalore@ksandk.com - [Chennai](https://ksandk.com/locations/chennai/): chennai@ksandk.com - [Hyderabad](https://ksandk.com/locations/hyderabad/): hyderabad@ksandk.com - [Pune](https://ksandk.com/locations/pune/): pune@ksandk.com - [Kochi](https://ksandk.com/locations/kochi/): kochi@ksandk.com ## Contact - [Contact Page](https://ksandk.com/contact-us/) - General: info@ksandk.com | +91-11-41318190 - WhatsApp: +91-7428567444 - [Privacy Statement](https://ksandk.com/privacy-statement/) - [Terms of Use](https://ksandk.com/terms-of-use/)