The Fortnight the Daily CRR Floor Broke
Vaibhavi Bank's treasury closes the fortnight ended 31 March 2026 with net demand and time liabilities (NDTL) of ₹2,40,000 crore. The applicable cash reserve ratio is 4.00 per cent of NDTL, to be maintained as an average of daily balances with the Reserve Bank of India over the 14-day fortnight, and no single day's balance may fall below 90 per cent of that requirement. On ten days the balance was ₹10,100 crore. On the four days from 27 to 30 March, when advance tax outflows and a state salary run coincided, the balance fell to ₹8,420 crore each day. The treasury head says nothing is payable, because the fortnight's average works out to ₹9,620 crore against a requirement of ₹9,600 crore. The bank rate is 6.00 per cent. On those four days the bank also borrowed ₹150 crore of overnight call money at 7.90 per cent, while its liquidity coverage ratio stood at 112 per cent. The board asks whether the Marginal Standing Facility should have been used, and what needs fixing before the statutory audit.
1. Quantify the penalty for the fortnight, if any, and explain which of the two maintenance tests was breached.
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Set out both tests first.
- Required CRR = 4.00% × ₹2,40,000 crore = ₹9,600 crore, to be met on average over the fortnight.
- Daily floor = 90% of ₹9,600 crore = ₹8,640 crore, which must be met on every day.
Average test: (10 × ₹10,100 + 4 × ₹8,420) / 14 = (₹1,01,000 + ₹33,680) / 14 = ₹9,620 crore. Met, with a small surplus of ₹20 crore.
Daily floor test: ₹8,420 crore is ₹220 crore short of ₹8,640 crore on each of the four days. Breached.
Penalty. Section 42(3) of the Reserve Bank of India Act, 1934 charges penal interest at 3 per cent above the bank rate on the amount by which the balance falls short of the prescribed minimum for that fortnight - here 6.00% + 3.00% = 9.00% per annum. Penalty = ₹220 crore × 9.00% × 4/365 = about ₹21.7 lakh (equivalently ₹880 crore-days × 0.09/365). Had the shortfall continued into the next fortnight, the rate would have risen to 5 per cent above bank rate.
Two traps. The penalty is levied on the shortfall below the 90 per cent floor, not on the full ₹9,600 crore; and a comfortable fortnightly average never cures a breach of the daily floor. The treasury head's defence is therefore wrong even though the average was met. Note also that CRR balances earn no interest, so the ₹20 crore average surplus carried as a buffer is itself a small cost.
2. Evaluate the treasury's funding choice on the four days and set out a better order of preference, given the LCR of 112 per cent and the SLR portfolio.
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What actually went wrong. The bank paid 7.90 per cent for overnight money when the MSF - the RBI's collateralised standing facility - is priced at the policy repo plus 25 basis points (with the SDF at repo minus 25 basis points). If the repo is 6.50 per cent, MSF money costs 6.75 per cent, roughly 115 bps cheaper. A bank should not be transacting unsecured call money above the MSF ceiling; that it did points to a shortage of the one input MSF needs - SLR securities held in excess of the 18 per cent statutory requirement (₹43,200 crore here).
Order of preference for the four days.
- Draw on the MSF by dipping into SLR up to 2 per cent of NDTL (₹4,800 crore available in principle): collateralised, cheapest, and treated favourably in the LCR because secured funding from the central bank carries no run-off.
- If the need is term rather than overnight, use the RBI's variable rate repo or a term money market deal matched to the expected duration of the outflow.
- Selling AFS/HTM securities is the last resort: it crystallises mark-to-market losses, shrinks the going-forward SLR and HQLA buffer, and for HTM requires the prescribed conditions to be satisfied.
Sequencing rule. Forecast the outflow week, decide the funding instrument before the day, and maintain a standing excess-SLR cushion of at least 1–2 per cent of NDTL. An LCR of 112 per cent gives only a thin cushion over the 100 per cent minimum; dipping further into HQLA to fund a routine tax outflow would erode it.
3. What governance and process changes should the board direct before the statutory audit?
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Board directions.
- Daily monitoring. A mid-office CRR/SLR monitor with an escalation trigger at, say, 93 per cent of the required CRR, owned by the treasury head and reported to the ALCO.
- Cash-flow forecast. A rolling 15-day forecast that hard-codes known outflow dates - advance tax, GST, salary and subsidy runs, quarter-end and year-end - with a pre-approved funding plan for each.
- MSF readiness. A standing authorisation and operational check that SLR securities held in the bank's SGL/CSGL accounts are free of lien and sufficient to support a 2 per cent dip, so the facility can be used the same day.
- Buffer policy. A written policy on the excess-SLR/HQLA buffer and on the conditions for shifting securities between HTM, AFS and HFS, with audit committee oversight.
- Reconciliation and accounting. Daily reconciliation with the RBI's e-Kuber statement, and treatment of any penal interest as an operational-risk loss reported to the board rather than buried in interest expense.
- ALM review. Because the same event that caused the CRR shortfall would also have stressed the liquidity coverage ratio, the structural liquidity statement and the LCR buffer plan should be reviewed alongside the CRR process, not separately.