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,—

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.]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).