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RBI's CRR move to put monthly burden of Rs 1,050 cr on banks

According to experts the move is likely to result into over Rs 3 trillion outflow from the banks

Press Trust of India  |  Mumbai 

An image of RBI headquarters in Mumbai (Photo: Kamlesh Pednekar)
An image of RBI headquarters in Mumbai (Photo: Kamlesh Pednekar)

Reserve Bank's move for banks to maintain excess reserve ratio (CRR) requirement is likely to put an additional burden of Rs 1,050 crore on a monthly basis on the system, says a report.

"Excess requirement will additionally cost the system Rs 1,050 crore on a monthly basis," Ratings and Research said in a note here on Wednesday.

In order to absorb surplus liquidity accrued by banks, last week asked banks to maintain 100% of the (NDTL) accrued between September 16 and November 11 as incremental balance with it.

RBI, however, said it was a purely temporary measure.

According to experts the move is likely to result into over Rs 3 trillion outflow from the banks.

The rating agency said the relief from on would come in a staggered manner, as relieving this high quantum of liquidly all at once will come with challenges.

"Normalisation of the requirement will be gradual and staggered as the may exercise caution before releasing the mopped up Rs 3 trillion to banks," the note said.

It said the persistence of the surplus liquidity conditions will lead the to evaluate alternatives available for liquidity sterilisation.

The agency continues to believe management bills can effectively manage the liquidity - owing to their short tenor and consistency with the monetary policy stance.

It said the decision to mop up excess liquidity will ensure a floor is put on bond yields.

The agency also expects banks to be more proactive in bringing down their term deposit rates as the increase in requirement creates a drag on the short-term profitability of banks.

The move, which is temporary in nature, does not impair the longer term profitability of banks, but induces a larger negative carry on in the computation of the marginal cost-based lending rate (MCLR).

The offsetting impact of a larger negative carry on compared with cheaper would restrict any significant downward movement of MCLR, hampering smooth monetary transmission, it said.

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RBI's CRR move to put monthly burden of Rs 1,050 cr on banks

According to experts the move is likely to result into over Rs 3 trillion outflow from the banks

According to experts the move is likely to result into over Rs 3 trillion outflow from the banks
Reserve Bank's move for banks to maintain excess reserve ratio (CRR) requirement is likely to put an additional burden of Rs 1,050 crore on a monthly basis on the system, says a report.

"Excess requirement will additionally cost the system Rs 1,050 crore on a monthly basis," Ratings and Research said in a note here on Wednesday.

In order to absorb surplus liquidity accrued by banks, last week asked banks to maintain 100% of the (NDTL) accrued between September 16 and November 11 as incremental balance with it.

RBI, however, said it was a purely temporary measure.

According to experts the move is likely to result into over Rs 3 trillion outflow from the banks.

The rating agency said the relief from on would come in a staggered manner, as relieving this high quantum of liquidly all at once will come with challenges.

"Normalisation of the requirement will be gradual and staggered as the may exercise caution before releasing the mopped up Rs 3 trillion to banks," the note said.

It said the persistence of the surplus liquidity conditions will lead the to evaluate alternatives available for liquidity sterilisation.

The agency continues to believe management bills can effectively manage the liquidity - owing to their short tenor and consistency with the monetary policy stance.

It said the decision to mop up excess liquidity will ensure a floor is put on bond yields.

The agency also expects banks to be more proactive in bringing down their term deposit rates as the increase in requirement creates a drag on the short-term profitability of banks.

The move, which is temporary in nature, does not impair the longer term profitability of banks, but induces a larger negative carry on in the computation of the marginal cost-based lending rate (MCLR).

The offsetting impact of a larger negative carry on compared with cheaper would restrict any significant downward movement of MCLR, hampering smooth monetary transmission, it said.
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Business Standard
177 22

RBI's CRR move to put monthly burden of Rs 1,050 cr on banks

According to experts the move is likely to result into over Rs 3 trillion outflow from the banks

Reserve Bank's move for banks to maintain excess reserve ratio (CRR) requirement is likely to put an additional burden of Rs 1,050 crore on a monthly basis on the system, says a report.

"Excess requirement will additionally cost the system Rs 1,050 crore on a monthly basis," Ratings and Research said in a note here on Wednesday.

In order to absorb surplus liquidity accrued by banks, last week asked banks to maintain 100% of the (NDTL) accrued between September 16 and November 11 as incremental balance with it.

RBI, however, said it was a purely temporary measure.

According to experts the move is likely to result into over Rs 3 trillion outflow from the banks.

The rating agency said the relief from on would come in a staggered manner, as relieving this high quantum of liquidly all at once will come with challenges.

"Normalisation of the requirement will be gradual and staggered as the may exercise caution before releasing the mopped up Rs 3 trillion to banks," the note said.

It said the persistence of the surplus liquidity conditions will lead the to evaluate alternatives available for liquidity sterilisation.

The agency continues to believe management bills can effectively manage the liquidity - owing to their short tenor and consistency with the monetary policy stance.

It said the decision to mop up excess liquidity will ensure a floor is put on bond yields.

The agency also expects banks to be more proactive in bringing down their term deposit rates as the increase in requirement creates a drag on the short-term profitability of banks.

The move, which is temporary in nature, does not impair the longer term profitability of banks, but induces a larger negative carry on in the computation of the marginal cost-based lending rate (MCLR).

The offsetting impact of a larger negative carry on compared with cheaper would restrict any significant downward movement of MCLR, hampering smooth monetary transmission, it said.

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Business Standard
177 22

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