Mumbai: RBI governor Shaktikanta Das on Friday announced the monetary policy committee’s decision to cut the cash reserve ratio by 50 basis points to 4 per cent. This will leave additional liquidity worth Rs 1.16 lakh crore with lenders, the RBI governor said during his monetary policy speech.
Cash Reserve Ratio is the minimum amount that commerical banks are required to deposit with the central bank. This denotes a specific percentage of the bank’s total deposits. Banks don’t earn any interest on CRR.
How CRR affects banks
While the RBI has not slashed the repo rate, the CRR cut will free up money for banks to lend to borrowers. While the repo rate hike was intended to soak up all the money from the system, thus curbing inflation, the price hike has remained stubborn on account of a surge in the cost of key vegetables. Repo rate is the rate at which EBI extends short-term loans to banks and financial institutions.
In this scenario, banks will have some relief in the form of lower CRR requirements. According to US brokerage Citi, SBI, ICICI Bank, PNB, HDFC and other major banks are expected to receive a boost to their net interest income from the RBI’s decision to slash the CRR.
Here’s how key lenders’ cash reserve ratios will look after the rate cut by the RBI governor:
Date
Revised CRR
Old CRR
SBI
4.2%
4.7%
HDFC Bank
5.8%
6.3%
ICICI Bank
5%
5.5%
PNB
3.9%
4.3%
Bank of Baroda
3.2%
3.7%
The RBI governor shared MPC’s decision to keep the repo rate unchanged at 6.50 per cent citing a decline in the Q2 GDP numbers. While sharply revising the GDP numbers downward, the RBI governor said inflation is likely to hurt for the current quarter but moderate with the onset of the March quarter of FY25. Das acknowledged a growth and inflation mismatch which is likely to be restored by the monetary policy.
RBI governor Shaktikanta Das announced a 50 bps cut in the cash reserve ratio or CRR to 4 per cent. While all eyes have been on the repo rate, the MPC deciision to cut the CRR has brought attention back to another important weapon in the RBI’s war chest for liquidity management. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
