Bankers press for 50-bp CRR cut in May 3 policy review

Tell Reserve Bank of India brass this will help them reduce lending rates

Heads of banks requested the Reserve Bank of India (RBI) on Thursday to lower their cash reserve ratio (CRR) by 50 basis points (bps) in its annual policy review scheduled on May 3.

This, they argued, would help them reduce lending rates. CRR is the proportion of deposits a bank needs to park with RBI as cash; it is presently four per cent. Banks do not earn any interest for their CRR balance with RBI.

RBI has reduced CRR by 200 bps since January 2012, to ease liquidity. This was tight in March but has now eased to a level the central bank finds comfortable.

“We have been seeking for some relief in CRR,” S S Mundra, chairman and managing director, Bank of Baroda, told reporters after the meeting. Some bankers have also made a case for further reduction in the repo rate (at which RBI lends to banks), now 7.5 per cent. RBI had reduced this by 25 bps each in January and March. Apart from Mundra, chief executives of State Bank of India, Bank of India, ICICI Bank and IndusInd Bank were present. RBI Governor D Subbarao attended, with the four deputy governors.

According to bankers, the sluggish growth in deposits were also discussed. “Deposit growth is slightly lower than the RBI expectation, probably because of tight liquidity conditions. The expectation is with liquidity becoming easier, it  (deposit growth) should improve,” said Mundra.

Deposit growth has been lagging credit growth for  two years, raising concern on widening of the asset-liability gap of banks.

However, in the fortnight ended March 22, banks garnered Rs 91,000 crore, which helped deposits to grow by 14.25 per cent over a year.

According to RBI data, credit disbursement was Rs 82,000 crore during the fortnight, growth of 14.1 per cent year-on-year. The central bank had projected 16 per cent growth in credit and 15 per cent growth in deposits for the financial year 2012-13.

According to a Bank of America Merrill Lynch report, loan growth in the current financial year (2013-13, which began on Monday) is set to fall below 13 per cent, though home loan growth will help to grow banks’ retail portfolio by 16 per cent.

Bankers at the meet said RBI reviewed 2012-13 in terms of growth of deposits and credit. RBI also got feedback related to other issues such as asset quality and stalled projects. Bankers pointed to the lack of a pipeline in new projects and of stalled projects due to various issues.