More Stories

Informist, Friday, Jun. 6, 2025

 

Please click here to read all liners published on this story

--RBI Malhotra: CRR cut to accelerate monetary policy transmission 
--RBI: CRR cut to be carried out in four equal tranches of 25 bps each 
--RBI:CRR cuts effective from fortnight starting Sept 6, Oct 4, Nov 1, Nov 29 
--RBI Malhotra: CRR cut to accelerate monetary policy transmission 
--RBI Malhotra: CRR cut to help with monetary policy transmission 
--RBI Malhotra: CRR cut to reduce cost of funding for banks 
--RBI Malhotra: CRR cut to release INR 2.5 tln of liquidity 
--RBI Malhotra: CRR to be cut by 100 bps to 3.00% of NDTL 
--RBI Malhotra: Will take proactive measures on liquidity as needed 
--RBI Malhotra: Committed to provide sufficient liquidity to banking system 
--RBI: Surplus banking liquidity reinforced repo rate cut transmission 
--RBI Malhotra: Total of INR 9.5 tln durable liquidity injected since Jan 
--RBI Malhotra: CRR cut was to infuse liquidity, cut cost of funding 
--RBI Malhotra: See 3% CRR as sufficient 
--RBI Malhotra: CRR at 3?n suffice, but future uncertain 
--RBI Malhotra: CRR not only tool for monetary policy, liquidity 
--RBI Malhotra:  CRR is not the only tool, there are enough tools 
--RBI Malhotra: Can manage liquidity with OMOs, swaps, VRRs 

 

MUMBAI – The Reserve Bank of India cut the cash reserve ratio by 100 basis points to 3% of banks' net, demand and time liabilites, Governor Sanjay Malhotra said while detailing the outcome of the Monetary Policy Committee's meeting on Friday. The cut, to carried out in four tranches of 25 basis points each, is expected to infuse liquidity to the tune of INR 2.5 trillion into the banking system, the governor said. 

 

The cut in CRR was not the only surprise announced by the central bank, as it unexpectedly lowered the policy repo rate by 50 basis points to 5.50%. In December, the regulator had lowered the cash reserve ratio by 50 bps to 4.00% of net, demand and time liabilities in two equal tranches, infusing INR 1.16 trillion of liquidity into the system. 

 

The reduction in cash reserve ratio will be carried out in four equal tranches with effect from the fortnights beginning Sept. 6, Oct. 4, Nov. 1 and Nov. 29, the governor said. "Besides providing durable liquidity, it will reduce the cost of funding of banks, thereby helping in monetary policy transmission to the credit market," Malhotra said. 

 

The RBI has already infused INR 9.5 trillion of liquidity into the banking system since January, the governor said. Open market purchases of gilts, including through NDS-OM, injected durable liquidity amounting to INR 5.2 trillion. Additionally, term variable rate repo auctions and dollar/rupee buy-sell swaps injected liquidity amounting to INR 2.1 trillion and INR 2.2 trillion, respectively, during the same period. The central bank remains committed to provide the banking system with liquidy when required, Malhotra said. 

 

The comfortable liquidity surplus in the banking system has further reinforced transmission of policy repo rate cuts to short-term rates, Malhotra said. Since the RBI cut the repo rate for the first time in February, the weighed average call rate has moderated by 70 bps, the three-month treasury bill rate by 88 bps, three-month commercial papers issued by non-bank finance companies by 143 bps, and three-month certificates of deposit rate by 138 bps. "The compression in CP and CD spreads over T-bill suggests easier financing conditions for banks and corporates," the RBI said. 

 

"However, we are yet to see a perceptible transmission in the credit market segment, though we must keep in mind that it happens with some lag," Malhotra said. The weighted average lending rate on fresh rupee loans and outstanding rupee loans declined by 6 bps and 17 bps, respectively, during Feb-Apr, reflecting policy rate transmission to lending rates. The weighted average domestic term deposit rates on fresh deposits declined by 27 bps.

 

At the post-policy press conference, Malhotra reiterated that the cut in cash reserve ratio was to infuse liquidity and cut the cost of funding. He also said the RBI currently sees 3?sh reserve ratio as sufficient. While one doesn't "know what the future holds", 3% was a comfortable ratio to have as of now, he said. 

 

The central bank expects net interest margins of Indian banks to improve by 7 basis points due to the addition of surplus liquidity after the cash reserve ratio cut comes into effect, Malhotra said. The improved liquidity will also support credit growth, he said. 

 

As in the recent past, the RBI will continue to use the various tools at its disposal, including dollar/rupee swaps, open market purchases of gilts, and variable rate repo auctions, to provide the required liquidity, Malhotra said.  End

 

Reported by Kabir Sharma

Edited by Avishek Dutta

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

 

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2025. All rights reserved.