Bankers expect 1% cut in CRR rates

With credit demand picking up and liquidity crunch yet to ease, bankers are expecting a cut in key policy ratio - Cash Reserve Ratio (CRR) - by one per cent in the mid-term monetary policy review by RBI, a top bank official said.

"Bankers won't be surprised if RBI announces a cut in CRR rate by one per cent in its mid-term monetary policy review," a top Punjab and Sindh bank official told PTI today on condition of anonymity.

The mid-term monetary policy review by RBI is due on December 16. Lowering CRR, the amount of funds banks have to keep with RBI, by one per cent is projected to infuse Rs 50,000-60,000 crore (Rs 500-600 billion) into the economy.

"Currently liquidity position is very tight in the system. With advance tax payouts lined up it will tighten up further. Unless government begins to loosen its purse strings the crunch will not ease off," he said.

The government has got Parliament nod for spending around Rs 20,000 crore (Rs 200 billion) over the budget estimates, which together with earlier approval will take the total extra expenditure to over Rs 74,000 crore (Rs 740 billion), a bank official said.

"The way things are moving, liquidity of Rs 50,000-60,000 crore will tide over for the period till government begins its spending," he said.

"The government spending has not taken place so far, and has been delayed somewhat this fiscal," he said. "CRR at 6 per cent has largely remained unchanged so far this year," a bank official said.

Liquidity is under pressure due to a slew of IPOs, busy credit season and advance tax payouts. The gravity of liquidity situation could be gauged from the fact that RBI lent over Rs 1,00,000 crore (Rs 1 trilion) to banks recently, the official said.

Earlier, RBI had already reduced statutory liquidity ratio (SLR), the percentage of deposits kept in government securities to infuse liquidity in the cash crunch system. Usually banks have to maintain SLR limit of 25 per cent.

The RBI has hiked its key rates six times this year, the last one being on November 2 when the repo rate (the rate at which it lends to the banks) was hiked by 0.25 per cent to 6.25 per cent and the reverse repo rate (rate at which it borrows from banks) by 0.25 per cent to 5.25 per cent.

"The New Year this time is going to be a different one for the bankers as they meet to review BPLR after this month end," a bank official said. "There is an upward bias for BPLR's as the bankers have hiked deposit rates by over 100-125 basis points in the past," he said. Following which, the interest rates of home and other loans are expected to perk up, he added.