Section 18 of the Banking Regulation Act 1949 deals with the provision Cash Reserve.  It is substituted by the amendment of 1984 w.e.f 29/03/1985, on the Recommendation of the Banking Commission.

Cash reserve Section 18 of Banking Regulation Act, 1949 -


(1) Every banking company, not being a scheduled bank shall maintain in India on a daily basis by way of cash reserve with itself or by way of balance in a current account with the Reserve Bank, or by way of net balance in current accounts or in one or more of the aforesaid ways, a sum equivalent to such per cent. of the total of its demand and time liabilities in India as on the last Friday of the second preceding fortnight as the Reserve Bank may specify, by notification in the Official Gazette, from time to time, having regard to the needs of securing the monetary stability in the country and shall submit to the Reserve Bank before the twentieth day of every month a return showing the amount so held on alternate Fridays during a month with particulars of its demand and time liabilities in India on such Fridays or if any such Friday is a public holiday under the Negotiable Instruments Act, 1881 (26 of 1881), at the close of business on the preceding working day.

Explanation — In this section, and in Section 24 — 


(a) “liabilities in India” shall not include —

            (i) the paid-up capital or the reserves or any credit balance in the profit and loss account of the banking company;

           (ii) any advance taken from the Reserve Bank or from the Exim Bank or from the Reconstruction Bank or from the National Housing Bank or from the National Bank, or from the small Industries Bank, by the banking company;

          (iii) in the case of a Regional Rural Bank, also any loan taken by such bank from its Sponsor Bank;

       (b) “fortnight” shall mean the period from Saturday to the second following Friday, both days inclusive;

       (c) “net balance in current accounts” shall, in relation to a banking company, mean the excess, if any, of the aggregate of the credit balances in current account maintained by that banking company with State Bank of India or a subsidiary bank or a corresponding new bank over the aggregate of the credit balances in current account held by the said banks with such banking company;

       (d) for the purposes of computation of liabilities, the aggregate of the liabilities of a banking company to the State Bank of India, a subsidiary bank, a corresponding new bank, a regional rural bank, another banking company, a co-operative bank or any other financial institution notified by the Central Government in this behalf, shall be reduced by the aggregate of the liabilities of all such banks and institutions to the banking company;

       (e) the expression “co-operative bank” shall have the meaning assigned to it in clause (cci) of section 56.

(1A) If the balance held by such banking company at the close of business on any day is below the minimum specified under sub-section (1), such banking company shall, without prejudice to the provisions of any other law for the time being in force, be liable to pay to the Reserve Bank, in respect of that day, penal interest at a rate of three per cent. above the bank rate on the amount by which such balance falls short of the specified minimum, and if the shortfall continues further, the penal interest so charged shall be increased to a rate of five percent. above the bank rate in respect of each subsequent day during which the default continues.

(1B) Notwithstanding anything contained in this section, if the Reserve Bank, is satisfied, on an application in writing by the defaulting banking company, that such defaulting banking company had sufficient cause for its failure to a company with the provisions of sub-section (1), it may not demand the payment of the penal interest.


(1C) The Reserve Bank may, for such period and subject to such conditions as may be specified, grant to any banking company such exemptions from the provisions of this section as it thinks fit with reference to all or any of its offices or with reference to the whole or any part of its assets and liabilities.

(2) The Reserve Bank may, for the purposes of this section and section 24, specify from time to time, with reference to any transaction or class of transactions, that such transaction or transactions shall be regarded as liability in India of a banking company and, if any question arises as to whether any transaction or class of transactions shall be regarded for the purposes of this section and section 24 as liability in India of a banking company, the decision of the Reserve Bank thereon shall be final.

See also...


1.  Restrictions on loans and advances (Section 20) | Banking Regulation Act, 1949

2. Maintenance of a percentage of assets (Section 24) | Banking Regulation Act, 1949

3. Distinction/Difference between shareholders and debenture holders 

4. Audit (Section 30) under the Banking Regulation Act 1949

5. Forms of Business of Banking Companies | Banking Law

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