RBI may not cut CRR despite growing demand by bankers, feel analysts

Mumbai, Apr 2 (UNI) Even though the bankers are demanding for a cut in cash reserve ratio (CRR) to overcome the liquidity, Reserve Bank of India (RBI) may not go for such a measure in its forthcoming annual review of monetary policy on April 18.

This is mainly owing to inflationary expectations in the economy, said analysts from leading commercial banks.

CRR is the cash that banks require to keep with the apex bank computed as a certain percentage of its demand and time liabilities.

The objective is to ensure the safety and liquidity of the deposits with the banks.

Currently, it is pegged at five per cent. One percentage point cut in the CRR could infuse Rs 200 billion into the banking system, the official said.

Analysts said that there were other ways to bring comfort in terms of liquidity availability rather than going for infusion of cash into the system through CRR reduction.

They felt that banks can find out their own ways to overcome their liquidity crisis by diverting certain finances from speculative areas such as real estate and capital markets to the core sector of the economy.

CRR is the last resort for the apex bank to maintain liquidity in the system.

The current trend shows credit growth of the country is at its historical high backed by phenomenal growth in the economy. It is expected that this momentum would continue for another three to four years.

But that does not mean that RBI has to resort to CRR cut to match the credit demand, at least immediately, analysts added.

However, a top banker said the CRR cut would provide the banking system to address the credit demand, particularly the long-term ones. He even expects an announcement from the RBI on this issue even before the annual review of the monetary policy.

RBI has to resort to the CRR cut to address the liquidity issue in the short term as a straight forward method since it could not make a further cut in the Statutory Liquidity Ratio, which has reached to the permissible level of 25 per cent.

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