RBI Second Amendment Directions 2026: New CRR/SLR Rules for Scheduled Local Area Banks

RBI has issued the Reserve Bank of India (Local Area Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Second Amendment Directions, 2026 (RBI/2026-27/255, dated September 11, 2026), amending its November 28, 2025 Directions on CRR and SLR for Local Area Banks (LABs). The amendment is triggered by the inclusion of a Local Area Bank in the Second Schedule to the Reserve Bank of India Act, 1934, which gives that bank scheduled bank status; the Directions do not name the bank concerned. The Directions insert a full set of scheduled-bank-specific provisions covering incremental CRR, minimum daily CRR maintenance, exempted categories, SLR treatment and penal interest, alongside the existing non-scheduled LAB framework. The provisions took effect immediately on issue.

What Changed?

The 2025 Directions applied CRR and SLR rules to Local Area Banks as a single, undifferentiated category — implicitly non-scheduled. These Second Amendment Directions carve the framework into two tracks: one for non-scheduled LABs (the pre-existing regime) and a new, more elaborate one for scheduled LABs, mirroring the CRR/SLR mechanics that apply to scheduled commercial banks generally.

Why This Matters

Scheduled bank status is not merely titular — it brings a Local Area Bank within the ambit of Section 42 of the RBI Act, 1934, which governs CRR maintenance for scheduled banks, and correspondingly increases regulatory reporting, reserve-maintenance and penal-consequence obligations relative to the lighter non-scheduled regime. This amendment operationalises that shift for the LAB category specifically, rather than leaving it to be inferred from the general scheduled-bank framework.

Who Is Affected?

• The Local Area Bank whose inclusion in the Second Schedule triggered this amendment (not named in the Directions) — it must now comply with the new scheduled-LAB provisions.
• Any other Local Area Bank that is or becomes a scheduled bank — the amended Directions apply to scheduled LABs as a category, not solely to the bank that prompted the amendment.
• Non-scheduled LABs — continue under the pre-existing framework in para 8, now expressly labelled as applicable only to non-scheduled LABs; their obligations are otherwise unchanged by this amendment.
• Directors, Managers and Secretaries of scheduled LABs — now subject to personal fine exposure under new para 38A in cases of continued CRR default.

Entities outside the Local Area Bank category are not affected by these Directions.

Key New Provisions for Scheduled LABs

Incremental CRR (para 7A). RBI may require scheduled banks — now including scheduled LABs — to maintain an additional average daily balance beyond the standard CRR, at a rate RBI notifies in the Gazette of India from time to time. The additional balance is calculated with reference to the excess of the bank's total Net Demand and Time Liabilities (NDTL) over its NDTL as at a base date specified in the relevant notification.

Phased CRR rates (para 8A). Scheduled banks, including scheduled LABs, must maintain an average daily balance with RBI of not less than 3.75%, 3.5%, 3.25% and 3.0% of NDTL (as on the last day of the second preceding fortnight), effective from the reporting fortnights beginning September 6, October 4, November 1 and November 29, 2025 respectively. This phased-reduction schedule reflects the broader CRR glide path RBI applied to scheduled banks generally, now expressly extended to scheduled LABs.

Daily minimum CRR (para 8B). A new sub-heading "Maintenance of Minimum CRR on Daily Basis" requires every scheduled bank to hold at least 90% of its required CRR on each day of the reporting fortnight, while the fortnightly average must still meet the prescribed CRR.

📝 In Plain English: A scheduled LAB can no longer average out its cash reserve requirement by running low on some days and high on others within a fortnight — it must stay close to the required level every single day, not just on average.

Savings bank deposit computation (para 15A). For scheduled LABs, the proportion of demand and time liabilities attributable to savings bank deposits continues to be calculated as at the close of business on September 30 and March 31 each year, with interest applied on a daily product basis.

Exempted categories (para 16A). Scheduled LABs are exempted from maintaining CRR on three categories of liabilities: net inter-bank liabilities (computed against a defined list of banking-system counterparties including SBI, nationalised banks, RRBs, banking companies, co-operative banks and RBI-notified financial institutions), credit balances in Asian Clearing Union (US$) accounts, and funds borrowed under market repo against Government securities.

SLR-related exemptions (paras 23(5) and 24(5)). Any RBI balance a scheduled LAB maintains in excess of its Section 42 CRR requirement, and market-repo funds borrowed against Government securities, are excluded from SLR computation.

Penal Interest and Director Liability

Para 37 has been substituted to set out distinct penal-interest tracks:

• Scheduled LABs, daily shortfall: penal interest at 3% per annum above the Bank Rate on the shortfall amount for that day; if the shortfall continues the next day, the rate rises to 5% per annum above the Bank Rate.
• Scheduled LABs, fortnightly-average shortfall: penal interest recovered as provided under Section 42(3) of the RBI Act, 1934.
• Non-scheduled LABs: penal interest recovered as provided under Section 18(1-A) of the Banking Regulation Act, 1949.

New para 38A introduces a further consequence specific to scheduled banks: where the increased 5% penal interest rate becomes payable under Section 42(3A) of the RBI Act and the default continues into the next fortnight, every Director, Manager or Secretary knowingly and wilfully party to the default is punishable with a fine of up to ₹500, plus a further fine of up to ₹500 for each subsequent fortnight of continued default. RBI may also prohibit the bank from accepting fresh deposits after that fortnight; non-compliance with such a prohibition exposes every director and officer knowingly, wilfully or negligently party to the default to a fine of up to ₹500, plus a further fine of up to ₹500 for each day after the first on which a prohibited deposit is retained.

Practical Example: If a scheduled LAB's average CRR falls short for a full reporting fortnight and the shortfall persists into the following fortnight at the enhanced 5% penal rate, its directors could face personal fine exposure under para 38A in addition to the bank's own penal interest liability — illustrating why fortnight-level CRR monitoring becomes materially more consequential once scheduled status applies.

Effective Date

The Second Amendment Directions, 2026 came into force with immediate effect from the date of issue, September 11, 2026. However, the phased CRR rates under new para 8A reference reporting fortnights beginning as early as September 6, 2025, indicating that the substantive CRR glide path being extended to scheduled LABs is one RBI had already applied to scheduled banks generally from late 2025, now formally read into the LAB-specific Directions with immediate effect.

Compliance Checklist for Scheduled LABs

Frequently Asked Questions

What triggered these Second Amendment Directions?
The inclusion of a Local Area Bank — Coastal Local Area Bank Limited, per RBI's notification dated September 4, 2026 — in the Second Schedule to the RBI Act, 1934, giving it scheduled bank status and requiring LAB-specific Directions to address scheduled-bank provisions.

When did these Directions come into force?
Immediately, from the date of issue — September 11, 2026.

What is the current CRR requirement for scheduled LABs?
Under the phased schedule in new para 8A, the rate stepped down from 3.75% to 3.0% of NDTL across reporting fortnights between September and November 2025; 3.0% is the terminal rate in the schedule.

Do non-scheduled LABs need to comply with these new provisions?
No. Para 8, now expressly limited to non-scheduled LABs, continues to govern them under the pre-existing framework; the new scheduled-bank provisions apply only to LABs with scheduled status.

Can directors of a scheduled LAB be personally fined for CRR shortfalls?
Yes, under new para 38A, if the enhanced 5% penal interest rate becomes payable and the default continues into the following fortnight, directors, managers or secretaries knowingly and wilfully party to the default face fines of up to ₹500 per fortnight of continued default.

Which liabilities are exempt from CRR for scheduled LABs?
Net inter-bank liabilities computed against specified banking-system counterparties, credit balances in Asian Clearing Union (US$) accounts, and funds borrowed under market repo against Government securities.

Does this amendment apply to LABs other than the one that triggered it?
Yes. The amendment inserts generally applicable provisions for "scheduled banks" and "scheduled LABs" as categories, meaning any LAB attaining scheduled status would fall within the same framework.

CorpLawUpdates Analysis

This amendment is narrow in scope — it affects only Local Area Banks, a small institutional category — but it is a useful illustration of how RBI handles a category transition: rather than leaving a newly scheduled entity to infer applicable CRR/SLR mechanics from the general scheduled-bank framework, RBI has chosen to expressly write scheduled-bank provisions into the LAB-specific Directions. For the affected bank's compliance and treasury functions, the immediate priorities are recalibrating CRR computation to the daily-minimum standard under para 8B and building fortnight-level monitoring discipline, given the new personal liability exposure for directors under para 38A. For other LABs, this Directions amendment is a template worth watching, since any future transition to scheduled status would likely trigger the same provisions.