1[18. Cash reserve.--(1) Every banking company, not being a scheduled bank, 2 [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 3[such per cent.] of the total of its demand and time liabilities in India as on the last Friday of the second preceding fortnight 4[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 5*** or from the Exim Bank 6[or from the Reconstruction Bank 7[or from the National Housing Bank]] or from the National Bank 8[, or from the small Industries Bank, 9[or from the National Bank for Financing Infrastructure and Development or from the other development financial institution] 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 the 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 reduce by the aggregate of the liabilities of all such banks institutions to the banking company;
(e) the expression co-operative bank shall have the meaning assigned to it in clause (cci) of section 56.
10[(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 per cent. 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 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.]
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 5*** or from the Exim Bank 6[or from the Reconstruction Bank 7[or from the National Housing Bank]] or from the National Bank 8[, or from the small Industries Bank, 9[or from the National Bank for Financing Infrastructure and Development or from the other development financial institution] 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 the 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 reduce by the aggregate of the liabilities of all such banks institutions to the banking company;
(e) the expression co-operative bank shall have the meaning assigned to it in clause (cci) of section 56.
10[(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 per cent. 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 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.]
Source footnotes
1. Subs. by Act 1 of 1984, s. 21, for section 18 (w.e.f. 29-3-1985).2. Subs. by Act 4 of 2013, s. 6, for shall maintain in India (w.e.f. 18-1-2013).
3. Subs. by s. 6, ibid., for at least three per cent. (w.e.f. 18-1-2013).
4. Ins. by s. 6, ibid. (w.e.f. 18-1-2013).
5. The words or from the Development Bank omitted by s. 6, ibid. (w.e.f. 18-1-2013).
6. Ins. by Act 62 of 1984, s. 71 and the Third Schedule (w.e.f. 20-3-1985).
7. Ins. by Act 53 of 1987, s. 56 and the Second Schedule (w.e.f. 9-7-1988).
8. Ins. by Act 39 of 1989, s. 53 and the Second Schedule (w.e.f. 7-3-1990).
9 Ins. by Act 17 of 2021, s. 48 and the third Schedule (w.e.f. 19-4-2021).
10. Ins. by Act 4 of 2013, s. 6 (w.e.f. 18-1-2013).
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More sections of this act
Section 1 · Short title, extent and commencement.Section 2 · Application of other laws not barred.Section 3 · Act not to apply to certain co-operative societies.Section 4 · Power to suspend operation of Act.Section 5 · Interpretation.Section 5A · Act to override memorandum, articles, etc.Section 6 · Form of business in which banking companies may engage.Section 7 · Use of words "bank", "banker", "banking" or "banking company".India Code, Government of India. Text fetched 15 Oct 2026. Source metadata reports last modification: 2026-01-06. Check the linked official text and subsequent notifications when applying a provision.