NDTL, CRR, SLR and Reserve-Asset Framework - Article

Introduction

Banks accept deposits and other liabilities and use a large part of those funds for:

• loans;

• investments;

• payment obligations; and

• other banking activities.

However, they cannot deploy every rupee of their liability base freely.

Indian banking regulation requires banks to maintain prescribed reserves in the form of:

• Cash Reserve Ratio (CRR); and

• Statutory Liquidity Ratio (SLR).

Both requirements are closely linked to Net Demand and Time Liabilities (NDTL).

The current IIBF CAIIB BFM syllabus specifically includes “Reserve Assets: CRR and SLR” under Module C – Funding and Regulatory Aspects.

As currently prescribed by RBI, the reserve ratios are:

• CRR: 3.00%

• SLR: 18.00%

RBI reduced CRR in four stages during 2025, with the final reduction to 3.00% of NDTL effective from the reporting fortnight beginning November 29, 2025. RBI's current-rates information in 2026 continues to show CRR at 3.00% and SLR at 18.00%.

Learning Objectives

After studying this topic, you should be able to:

• explain Demand Liabilities and Time Liabilities;

• understand the meaning of NDTL;

• distinguish liabilities to the banking system from liabilities to others;

• explain CRR and its purpose;

• explain SLR and eligible reserve assets;

• distinguish CRR from SLR;

• understand how reserve requirements affect bank liquidity;

• relate statutory reserves to treasury management; and

• avoid common CAIIB traps involving CRR, SLR, and NDTL.

What Is NDTL?

NDTL stands for:

Net Demand and Time Liabilities

It is an important regulatory base used for determining statutory reserve requirements.

A bank's liabilities can broadly arise toward:

• the banking system; and

• others, such as customers and other non-bank parties.

RBI classifies liabilities broadly according to whether they are:

• payable on demand; or

• payable after a specified period.

RBI's reserve-requirement framework defines demand liabilities as liabilities payable on demand and time liabilities as liabilities payable otherwise than on demand.

Demand Liabilities

A Demand Liability is a liability payable when demanded.

Typical examples include:

• current-account deposits;

• demand portion of savings deposits;

• overdue deposits payable on demand;

• outstanding demand drafts and similar payable instruments;

• certain margins payable on demand;

• credit balances in specified accounts; and

• other liabilities payable immediately.

RBI's reserve-requirement instructions include current deposits, the demand component of savings deposits, certain overdue deposits, outstanding transfers/drafts, and other payable-on-demand items within demand liabilities.

Time Liabilities

A Time Liability is payable otherwise than on demand.

Common examples include:

• fixed deposits;

• recurring deposits;

• time portion of savings deposits;

• staff security deposits;

• certain margin deposits not payable on demand; and

• other liabilities payable after an agreed period.

RBI specifically treats fixed deposits, recurring deposits, the time-liability component of savings deposits, and similar items as time liabilities.

Savings Deposits Contain Both Components

A savings-bank deposit is an important examination example.

It is not necessarily treated entirely as either:

• demand liability; or

• time liability.

For reserve computation, savings deposits are apportioned into:

• a demand component; and

• a time component

according to RBI's prescribed methodology.

Therefore:

Savings Deposit ≠ automatically 100% Demand Liability

This is a common conceptual trap.

Other Demand and Time Liabilities

Banks can also have liabilities outside ordinary deposit accounts.

RBI's framework identifies Other Demand and Time Liabilities (ODTL) such as certain:

• accrued interest payable;

• bills payable;

• unpaid dividends;

• suspense balances representing outside liabilities;

• branch-adjustment credit balances; and

• other amounts due to banks or the public.

Such items may form part of reserve-requirement liabilities according to their nature and applicable instructions.

Liabilities to the Banking System

A bank may owe money to other banks.

Examples can include:

• deposits received from banks;

• inter-bank borrowings;

• call or notice money borrowings; and

• other eligible inter-bank liabilities.

At the same time, the bank may itself have assets with other banks.

Examples can include:

• balances with banks;

• inter-bank deposits;

• call money lent; and

• advances to banks.

RBI's framework permits prescribed netting of applicable inter-bank liabilities against assets with the banking system for reserve computation.

This is why the term is:

Net Demand and Time Liabilities

rather than simply gross liabilities.

NDTL in Simple Language

For CAIIB purposes, understand NDTL conceptually as:

The bank's relevant demand and time liabilities after applying the prescribed regulatory treatment for inter-bank items, exclusions, and exemptions.

Do not assume that every balance appearing on the liability side of a bank's balance sheet automatically forms part of NDTL.

For example, RBI's framework excludes specified items such as:

• paid-up capital;

• reserves;

• certain RBI borrowings/refinance; and

• other specifically exempted liabilities

from reserve computation.

What Is Cash Reserve Ratio?

Cash Reserve Ratio, or CRR, is the prescribed proportion of NDTL that a bank must maintain as cash balance with RBI.

For scheduled commercial banks, CRR is prescribed under Section 42 of the Reserve Bank of India Act, 1934.

RBI has statutory authority to prescribe the CRR having regard to monetary stability requirements.

Current CRR

The current CRR is:

3.00% of NDTL

The 2025 reduction was implemented in four 25-basis-point stages:

• 3.75% from September 6, 2025;

• 3.50% from October 4, 2025;

• 3.25% from November 1, 2025; and

• 3.00% from November 29, 2025.

Where Is CRR Maintained?

CRR is maintained as a cash balance with the Reserve Bank of India.

It is not satisfied merely by a bank having:

• cash in its branches;

• Government securities;

• gold; or

• money deposited with another commercial bank.

This makes CRR different from SLR.

CRR Maintenance Period

CRR operates through a fortnightly reserve-maintenance system.

RBI describes CRR as an average daily balance maintained with RBI as a proportion of NDTL determined with reference to the prescribed reporting framework. The reserve base uses the NDTL position of the relevant preceding reporting period.

Scheduled commercial banks generally maintain:

• the required CRR on an average basis over the fortnight; and

• a prescribed minimum proportion of required reserves on individual days.

RBI's liquidity framework retained a minimum daily maintenance requirement of 90% of the CRR requirement, apart from temporary dispensations such as those granted during the COVID-19 period.

Does RBI Pay Interest on CRR?

CRR is a statutory cash reserve.

RBI does not pay interest on the eligible CRR balances maintained by scheduled commercial banks under the statutory CRR requirement.

This makes CRR economically different from an earning investment asset.

For treasury, CRR therefore represents liquidity that cannot ordinarily be deployed for earning assets.

Why RBI Uses CRR

CRR serves several purposes.

Monetary Liquidity Control

A higher CRR requires banks to keep more funds with RBI.

This reduces funds available for:

• lending;

• market deployment; and

• other investments.

A lower CRR releases banking-system liquidity.

RBI's 2025 decision to reduce CRR by 100 basis points was explicitly implemented through four tranches.

Statutory Reserve Discipline

CRR ensures that a prescribed part of banks' liability base remains as central-bank cash reserves.

Monetary Transmission

Changes in CRR affect:

• banking-system liquidity;

• money-market conditions;

• funding availability; and

• potentially credit conditions.

What Is Statutory Liquidity Ratio?

Statutory Liquidity Ratio, or SLR, is the prescribed proportion of NDTL that banks must maintain in specified liquid assets in India.

SLR is governed principally through Section 24 of the Banking Regulation Act, 1949, along with RBI directions.

RBI defines SLR as the requirement for banks to hold the prescribed proportion of their demand and time liabilities in specified assets, typically including Government securities, cash, and gold.

Current SLR

The current prescribed SLR is:

18.00% of NDTL

RBI's 2026 current-rates information continues to show an SLR of 18%.

Eligible SLR Assets

SLR can be maintained through specified eligible assets such as:

Cash

Eligible cash holdings according to the regulatory framework.

Gold

Gold valued according to the applicable regulatory conditions.

SLR Securities

These primarily include prescribed Government securities such as:

• Government of India Treasury Bills;

• eligible Central Government dated securities;

• State Government Securities/SDLs; and

• other securities specifically notified as eligible.

RBI's reserve framework provides for SLR maintenance through cash, gold, and prescribed Government securities and excludes encumbered securities except where specifically permitted.

Why “Unencumbered” Matters

An asset pledged or otherwise encumbered may not be freely available to meet liquidity requirements.

Therefore, SLR treatment generally requires eligible assets to be unencumbered, subject to specific regulatory exceptions.

A bank cannot simply count the same security freely for multiple purposes when the security is no longer available to it.

SLR Must Be Maintained Daily

Unlike the average-maintenance concept commonly associated with CRR, the required SLR assets must be maintained at the close of business on each day according to the regulatory framework.

This is important for treasury because:

• purchases;

• sales;

• repo transactions;

• collateral use; and

• redemption of securities

can change the bank's daily SLR position.

Treasury must therefore continuously monitor the available SLR buffer.

CRR vs SLR

CRR and SLR Are Not the Same as Liquidity Buffers under Basel

Banks also maintain liquidity standards such as:

• Liquidity Coverage Ratio (LCR); and

• Net Stable Funding Ratio (NSFR).

These should not be confused with CRR and SLR.

CRR and SLR

They are statutory/regulatory reserve requirements linked to the bank's liability base.

LCR

It tests whether sufficient High Quality Liquid Assets are available to meet stressed net cash outflows over 30 days.

NSFR

It assesses structural funding stability over a longer horizon.

Therefore:

CRR/SLR compliance does not automatically prove LCR/NSFR compliance

and vice versa.

Treasury Role in Reserve Management

Treasury plays a major operational role in managing statutory reserves.

CRR Management

Treasury monitors:

• RBI account balances;

• expected inflows and outflows;

• NDTL movements;

• daily reserve position; and

• fortnightly average requirement.

Holding excessive CRR unnecessarily can create an opportunity cost.

Holding too little creates regulatory shortfall risk.

SLR Management

Treasury monitors:

• eligible securities;

• purchases and sales;

• collateral encumbrance;

• repo use;

• maturity/redemption;

• valuation; and

• statutory buffer.

The treasury objective is not merely to reach the minimum.

It must maintain sufficient headroom to avoid accidental shortfalls.

Effect of Reserve Ratios on Bank Funding

Suppose deposits increase.

This can increase NDTL.

A higher NDTL can therefore increase:

• required CRR balance; and

• required SLR assets.

Thus, not every additional ₹100 of deposit funding is freely deployable into loans.

Part must support statutory reserves.

This is one reason treasury examines the effective cost and liquidity value of liabilities, not merely their quoted deposit interest rate.

CRR Reduction and Liquidity

When RBI reduces CRR:

• less cash is required to remain impounded as statutory reserves;

• funds are released into the banking system; and

• banks gain additional deployable liquidity.

When CRR is increased, the opposite generally occurs.

This is why CRR can function as a monetary and liquidity-management instrument.

SLR and Bank Investment Portfolios

SLR also creates an important link between:

• regulation; and

• treasury investment.

Banks hold large Government-security portfolios for several reasons, including:

• SLR compliance;

• liquidity;

• collateral;

• interest income;

• repo operations; and

• market positioning.

However, holding a Government security does not automatically mean that every rupee of it is freely countable toward SLR.

Treasury must consider:

• eligibility;

• encumbrance;

• regulatory classification; and

• current RBI instructions.

Practical Banking Application

Assume a bank's deposit base rises sharply near a reporting date.

Treasury should not look only at the additional cash received.

It must consider whether the increase affects:

• NDTL;

• CRR requirement;

• SLR requirement; and

• available deployable surplus.

Similarly, if treasury sells a large amount of Government securities to create liquidity, it must check whether the remaining portfolio still provides sufficient eligible SLR assets.

A transaction can improve immediate cash liquidity but simultaneously reduce the SLR buffer.

CAIIB Exam Focus

NDTL = Net Demand and Time Liabilities.

Demand liabilities are payable on demand.

Time liabilities are payable otherwise than on demand.

Savings deposits contain prescribed demand and time components.

CRR and SLR are both linked to NDTL.

Current CRR = 3.00%.

Current SLR = 18.00%.

CRR is maintained as cash with RBI.

Government securities cannot substitute for CRR.

SLR can be maintained through prescribed liquid assets including eligible Government securities, cash and gold.

CRR is governed principally by Section 42 of the RBI Act for scheduled banks.

SLR is governed principally by Section 24 of the Banking Regulation Act.

Total balance-sheet liabilities are not automatically equal to NDTL.

Inter-bank items are subject to prescribed netting treatment.

Eligible exclusions and exemptions must be considered while computing the reserve base.

CRR is not the same as SLR.

CRR/SLR are not the same as LCR/NSFR.

Common Exam Traps

Trap 1: NDTL Means Total Customer Deposits

Incorrect.

NDTL is a regulatory measure that also considers other liabilities, inter-bank adjustments, exclusions, and exemptions.

Trap 2: Every Savings Deposit Is Entirely a Demand Liability

Incorrect.

Savings deposits are divided into prescribed demand and time components.

Trap 3: CRR Can Be Maintained in Government Securities

Incorrect.

CRR is maintained as cash balance with RBI.

Trap 4: SLR Must Also Be Kept Entirely with RBI

Incorrect.

SLR is maintained through prescribed eligible liquid assets in India.

Trap 5: Current CRR Is 4%

Outdated.

The CRR was reduced to 3.00% effective from the reporting fortnight beginning November 29, 2025.

Trap 6: Current SLR Is 20%

Outdated.

RBI currently shows SLR at 18.00%.

Trap 7: CRR and SLR Are Calculated on Bank Capital

Incorrect.

They are reserve requirements linked to the prescribed liability base/NDTL.

Trap 8: All Government Securities Automatically Qualify for SLR

Incorrect.

The security must satisfy the applicable RBI eligibility requirements.

Trap 9: An Encumbered Security Is Always Fully Available for SLR

Incorrect.

Encumbrance matters, subject to specific regulatory exceptions.

Trap 10: CRR and SLR Produce the Same Economic Effect

Incorrect.

CRR is central-bank cash reserve; SLR is a prescribed liquid-asset requirement.

Trap 11: Higher Deposit Mobilisation Can Be Fully Converted into Loans

Incorrect.

Growth in reservable liabilities can also increase statutory reserve requirements.

Trap 12: LCR Has Replaced SLR

Incorrect.

LCR, NSFR, CRR and SLR are separate regulatory concepts with different purposes.

Memory Technique

Remember:

NDTL → Base

CRR → RBI Cash

SLR → Liquid Assets

For the current rates:

3 – 18

• CRR = 3%

• SLR = 18%

And for the legal distinction:

RBI Act → CRR

Banking Regulation Act → SLR

The central CAIIB rule is:

First determine the reservable liability base; then apply the correct reserve requirement and the correct form of reserve asset.