Rajan takes on SBI, says no relevance btwn CRR & cheaper loans

RBI Governor Raghuram Rajan today dismissed the demand made by SBI for a reduction in cash reserve ratio (CRR) prior to the policy, as "irrelevant", saying there is no correlation between lower CRR and cheaper loans.
The RBI left the CRR unchanged in its monetary policy today.
"I don't understand why the market has got so enthused about a cut in the CRR. It is irrelevant at this point, as far as the lending rates go," Rajan said while speaking at the post-policy concall with analysts.
He said effecting even a 1 percentage point cut in the CRR, which is the amount of deposits banks have to mandatorily park with the RBI without any interest, will help reduce the lending rates by only 0.07 to 0.08 percent. Moreover, such a cut will release over Rs 80,000 crore into the market permanently, the Governor said.

Later in the evening, SBI cut base lending rate by 0.15 percentage point to 9.85 per cent and hinted at lowering deposit rate aswell.
It can be noted that State Bank of India chairman Arundhati Bhattacharya was at the forefront of pressing for a cut in the CRR ahead of the policy announcement, saying it can reduce cost of fund which in turn will help the bank pass on the benefits to the borrowers.

The country's largest lender has been repeatedly lobbying for a CRR cut or even its abolition and there was a very strong exchange of words between the then bank chairman Pratip Chaudhuri and the then deputy governor KC Chakrabarty regarding the same.

Chaudhuri had even demanded the complete abolition of the CRR, saying this was dead money.
The SBI chief's comments ahead of the policy announcement had led many market participants to believe that such a cut was on its way.
The banks are yet to pass on the benefits received from two earlier rate cuts to the tune of 50 basis points by the RBI and Governor Rajan has been nudging lenders to pass it to the borrowers.