1 Percentage Point Cut In Crr Seen

A reduction in CRR by 1 percentage point amounts to a release of Rs 4,500 crore into the banking system. Though the industry ministry has recommended a 3 to 5 per cent cut in CRR, bankers feel there is little likelihood of the cut being of more than 1 percentage point. Even this is expected to come in two stages of 0.5 percentage point each.

With a reduction in CRR, there will be an increase in the lendable funds of banks and there is an expectation that the effective lending rates will come down.

Though there has been a downward movement in the prime lending rates (PLR), the effective rate has not come down substantially.

 

Bankers also feel that there is very little likelihood of export refinance being done away with. At present, export refinance is available within the banking system up to Rs 12,000 crore at 11 per cent. There is a possibility that the entitlement to banks for export credit will be reduced by bringing forward the cut-off period.

A reduction in the CRR requirements is in line with the stated objectives of the monetary policy and the goal of the banking sector reform is to bring down CRR to 10 per cent and below.

Effective July 6, the reserve ratio requirements were cut by 1 percentage point which, at present, stands at 12 per cent.

Along with a reduction in the CRR, the RBI withdrew refinance facilities against government securities.

The banks are provided refinance under two separate limits. The first limit is against the collateral of treasury bills at an interest rate of 12.5 per cent per annum and the second is against dated government and other approved securities at an interest rate of 14 per cent per annum.

In case the cut in CRR requirements is accompanied with continued pressure on supporting the governments borrowing programme, there is little likelihood of there being an easing of money within the banking system.

During the past few auctions of gilts, the Reserve Bank has been resorting to moral suasion asking bankers to pick up government securities.