Section 42 of RBI Act : Section 42: Cash Reserves Of Scheduled Banks To Be Kept With The Bank

Explanation using Example

Imagine a bank named "Stable Bank Ltd." is listed in the Second Schedule of the Reserve Bank of India (RBI) Act, 1934. As a scheduled bank, it is required by Section 42(1) to maintain a minimum average daily balance with the RBI. The RBI has notified that this balance should be 4% of the bank's total demand and time liabilities in India.

For example, if "Stable Bank Ltd." has total demand and time liabilities amounting to ₹100 crore, it must maintain an average daily balance of at least ₹4 crore with the RBI. This balance is calculated over a fortnight period from Saturday to the following second Friday. If the bank fails to maintain this minimum balance, it would be liable to pay penal interest to the RBI, as outlined in Section 42(3).

Furthermore, "Stable Bank Ltd." is required to submit fortnightly returns to the RBI as per Section 42(2), detailing its liabilities and assets such as loans, investments, and cash reserves. If the bank fails to submit these returns on time, it could face a penalty of ₹100 for each day of delay as per Section 42(4).