Chapter III — Central Banking Functions

Section 42: Cash reserves of scheduled banks to be kept with the Bank

Reviewed by CA Nikhil Gupta · Last reviewed 18 September 2026

Section 42 requires scheduled banks to maintain cash reserves with RBI and to furnish the statutory returns used for monitoring the requirement.

Operative provisionOfficial sources mappedProvision-specific decode

Finin2min - Section 42 in 2 minutes

Legal effectSection 42 requires scheduled banks to maintain cash reserves with RBI and to furnish the statutory returns used for monitoring the requirement.

Operative ruleAfter the Banking Laws (Amendment) Act, 2025 took effect on 15 December 2025, the statutory 'fortnight' is aligned to the first-to-15th and 16th-to-last-day calendar periods and the return mechanics refer to the last day of each fortnight with the amended filing period. RBI separately sets the CRR percentage through its statutory notification framework.

Connected lawThe section applies to a 'scheduled bank' as defined by inclusion in the Second Schedule. NDTL computation, exclusions, incremental requirements and penalties must be taken from the current Act/RBI directions and notification effective for the reporting period.

File evidenceFor each return, retain scheduled-bank status, NDTL working, applicable CRR rate, fortnight dates, daily/average balances where required and the submitted RBI return.

Statutory structure and clause / subsection decode

This map separates the operative limbs of this provision so thresholds, powers, conditions and exceptions are not collapsed into a single summary.

42(1)

Every bank in the Second Schedule must maintain with RBI an average daily balance at not less than the percentage of demand and time liabilities in India notified by RBI for monetary stability.

Explanation / NDTL perimeter

Apply the statutory liability exclusions and current RBI instructions when computing the base. Scheduled-bank status must be verified against the Second Schedule/current RBI inclusion or exclusion instrument.

2025 amendment - fortnight

For the post-amendment framework, a fortnight is the 1st-15th or 16th-last day of the calendar month; use the Banking Laws (Amendment) Act, 2025 and its commencement instrument for the effective-date transition.

Return reference date

The amendment replaces the old alternate-Friday reference with the last day of each fortnight and shortens the statutory return period from seven days to five days.

CRR rate

RBI's 6 June 2025 notification reduced CRR in four tranches to 3.00% of NDTL from the reporting fortnight beginning 29 November 2025; always test the rate against the relevant reporting period.

Shortfall/consequence

Use the remaining Section 42 machinery and current RBI directions for shortfall, penal consequences and schedule status; Section 58D excludes Section 42 matters from Section 58B.

Worked practical example

Facts. For a December 2025 reporting period, do not use an old alternate-Friday calendar. First apply the amended statutory fortnight definition, then the current RBI CRR rate and reporting instructions.

Compliance points and common mistakes

Do not decide the issue from the heading alone. Map the facts to the operative words of Section 42 and to each relevant subsection, clause, proviso or explanation shown above.
Keep the statutory question separate from the operational overlay. The section applies to a 'scheduled bank' as defined by inclusion in the Second Schedule. NDTL computation, exclusions, incremental requirements and penalties must be taken from the current Act/RBI directions and notification effective for the reporting period.
Do not convert an exception, exemption or discretionary RBI/Government power into an automatic entitlement. Record the authority, conditions and effective date.
Where the provision is historical, omitted or repealed, state that status prominently and do not present it as a current compliance obligation.

Connected provisions and instruments

Section 42 CRR — current statutory and RBI frameworkSection 42 as amended by the Banking Laws (Amendment) Act, 2025, read with RBI’s June 2025 CRR notification reducing CRR to 3.0% in four tranches.

Questions and answers

What is the purpose of Section 42?

Cash reserves of scheduled banks to be kept with the Bank: Section 42 requires scheduled banks to maintain cash reserves with RBI and to furnish the statutory returns used for monitoring the requirement.

Which statutory limb should be checked first?

42(1) - Every bank in the Second Schedule must maintain with RBI an average daily balance at not less than the percentage of demand and time liabilities in India notified by RBI for monetary stability.

What is the next legal boundary?

Explanation / NDTL perimeter - Apply the statutory liability exclusions and current RBI instructions when computing the base. Scheduled-bank status must be verified against the Second Schedule/current RBI inclusion or exclusion instrument.

What record should support the conclusion?

Section 42 file evidence: For each return, retain scheduled-bank status, NDTL working, applicable CRR rate, fortnight dates, daily/average balances where required and the submitted RBI return.

Primary sources

Source control for Section 42: use the official consolidated RBI Act for the statutory text and footnotes, then separately reconcile any post-Finance Act 2022 amendment, commencement notification or RBI instrument relevant to the event date.

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