What Happened
- A government-appointed High-Level Committee on Banking — proposed in Union Budget 2026 — is considering recommendations to review the Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), and banking licensing requirements.
- The committee's mandate includes examining regulatory coordination between the government and the RBI to boost credit growth and align banking norms with India's Viksit Bharat 2047 ambitions.
- The exercise is seen as the contemporary equivalent of the Narasimham Committee reviews of the 1990s, which last led to a fundamental restructuring of India's banking prudential framework.
- As of February 2026, CRR stands at 3.00% and SLR at 18.00%, following the RBI's phased reduction of CRR through late 2025.
Static Topic Bridges
Cash Reserve Ratio (CRR) — Mechanism and Current Status
CRR is the minimum percentage of a commercial bank's net demand and time liabilities (NDTL) that must be kept as cash with the Reserve Bank of India. Banks earn no interest on CRR balances. CRR is governed under Section 42 of the RBI Act, 1934. It is a primary monetary policy instrument: raising CRR drains liquidity from the system; lowering it injects liquidity, enabling more credit creation.
- Current CRR (as of February 2026): 3.00% of NDTL
- Governed by: Section 42, RBI Act, 1934
- RBI's phased CRR reduction in 2025: from 4.00% to 3.00% via four steps (3.75%, 3.5%, 3.25%, 3.0%) effective September–November 2025
- Rationale for reduction: to release locked reserves and support credit expansion during a slowdown
- CRR at peak (pre-liberalisation): 15% of NDTL; reduced progressively on Narasimham Committee recommendations
Connection to this news: The committee is examining whether a further CRR reduction (or a structural rethink of the ratio's role) could free up more lendable resources for banks, complementing recent RBI rate cuts.
Statutory Liquidity Ratio (SLR) — Mechanism and Role
SLR is the minimum percentage of NDTL that banks must maintain in liquid assets — comprising cash, gold, and government-approved securities (G-Secs, T-Bills, state development loans). Unlike CRR, SLR assets are interest-bearing. SLR is regulated under Section 24 of the Banking Regulation Act, 1949. It ensures banks always hold a portfolio of sovereign securities, providing both systemic safety and a captive buyer base for government debt.
- Current SLR (as of February 2026): 18.00% of NDTL
- Governed by: Section 24, Banking Regulation Act, 1949
- SLR at peak: 38.5% in 1991; Narasimham Committee I recommended reduction to 25%
- SLR was reduced to 25% by 1997, and further progressively to 18% over subsequent years
- Implication of high SLR: banks are forced buyers of G-Secs, dampening private credit allocation
Connection to this news: A review of SLR could signal a shift away from financial repression — the practice of forcing banks to hold government paper at below-market returns. Any reduction would widen the private credit space but could complicate government borrowing costs.
Narasimham Committee Reforms — Historical Benchmark for Banking Review
The current High-Level Committee is widely compared to the Narasimham Committees (1991 and 1997–98), which restructured India's banking sector post-liberalisation. The First Narasimham Committee (1991), chaired by M. Narasimham (former RBI Governor), was constituted by Finance Minister Manmohan Singh and recommended sweeping reductions in CRR and SLR, introduction of prudential norms (NPA recognition, capital adequacy), and interest rate deregulation. The Second Narasimham Committee (1997–98) focused on consolidation, NPAs, and recapitalisation.
- First Narasimham Committee: constituted August 14, 1991; recommended CRR cut to 3–5%, SLR cut to 25%
- Implementation: SLR reduced from 38.5% to 25% by 1997; CRR reduced from 15% to 5.5% by December 2001
- Second Narasimham Committee: constituted December 1997; focused on NPA resolution and bank mergers
- The committees established India's modern prudential banking framework — capital adequacy, income recognition standards, provisioning norms
Connection to this news: The 2026 High-Level Committee is the first since Narasimham II to revisit the structural parameters of prudential norms. Its recommendations could trigger the most significant banking regulatory overhaul in nearly three decades.
Banking Licensing Norms — RBI's Regulatory Role
Banking licensing in India is governed by the Banking Regulation Act, 1949 (Sections 22 and 23 for opening of branches). The RBI issues licences for new banks, differentiated banks (payment banks, small finance banks), and overseas branches. The committee's review of licensing norms may examine universal banking licences, on-tap licensing (introduced in 2016), and entry of industrial houses into banking — a contentious issue flagged by the RBI's Internal Working Group (2020) and rejected by the RBI in 2021.
- Licensing authority: Reserve Bank of India under Banking Regulation Act, 1949
- On-tap universal bank licensing policy: introduced 2016 (continuous rather than periodic windows)
- Small Finance Banks and Payment Banks: introduced 2015 (differentiated bank licensing)
- RBI's 2021 position: rejected entry of large industrial houses as bank promoters (IWG recommendation not adopted)
- Current area of review: whether licensing criteria and ownership caps need updating for 2047 goals
Connection to this news: The committee may revisit whether restrictions on industrial house ownership of banks and minimum capital requirements remain appropriate for a ₹5 trillion economy, making this a live Mains topic on banking regulation and RBI autonomy.
Key Facts & Data
- CRR current rate (February 2026): 3.00% of NDTL; governed by Section 42, RBI Act, 1934
- SLR current rate (February 2026): 18.00% of NDTL; governed by Section 24, Banking Regulation Act, 1949
- Repo rate (February 2026): 5.25%
- CRR peak: 15% (pre-1991); reduced to 3% over three decades
- SLR peak: 38.5% (1991); Narasimham I recommended cut to 25%
- High-Level Committee proposed in: Union Budget 2026 (Viksit Bharat 2047 mandate)
- Comparable precedent: Narasimham Committee I (1991) and II (1997–98)
- RBI's Regulatory Review Cell: established October 1, 2025, mandated to review regulations every 5–7 years