Bankers on Saturday said
RBI's more-than expected 0.75-percentage point
cut in cash reserve ratio (CRR) will ease the liquidity strain, but ruled out any immediate reduction in lending rates.
"We were expecting 50 basis points cut in the CRR and hence, are pleasantly surprised by the Reserve Bank's move... banks will not cut lending rates immediately though," SBI Chairman Pratip Chaudhuri said.
Up to Rs 7,000 crore will get released for the bank as a result of the RBI's move, he said, adding it will accrue into an annual benefit of Rs 550 crore for the bank.
Chaudhuri added the CRR reduction has an ability to soften lending rates by banks but added lenders will start looking at that option only in April.
Prompted by the uncomfortably high liquidity deficit in the system -- which saw banks drawing Rs 1.92 lakh crore or nearly 2.5 times the stated comfort level of the apex bank from the overnight borrowing window on March 1 -- the RBI on Friday cut the CRR by 0.75 percentage point to 4.75 per cent, releasing Rs 48,000 crore into the banking system.
This is the second reduction in the
CRR since the January 24 policy announcement, when it had slashed CRR by 50 basis points releasing Rs 32,000 crore into the system.
The surprise move also was prompted by expected strain on the system in view of impending advance tax payment - the last date being March 15 - by corporates which will drain nearly Rs 60,000 crore from the banking system.
Early this week, Rs 12,000 crore was driven out of the system due to the ONGC share auction, a similar amount will go out in excise duty payment by companies.
Bank of Baroda Chairman and Managing Director M D Mallya said the RBI action can ease short-term inter-bank borrowing rates.
He said the cut will release Rs 2,000 crore for his bank but maintained that it is unlikely for any lender to cut lending rates immediately as a result of the RBI move.
"The cut is a proactive step by RBI to inject permanent liquidity into the system. This is expected to bring down the high level of overnight borrowings by banks," ICICI Bank Managing Director and Chief Executive Chanda Kochhar said.
"The cut, which comes a week ahead of the scheduled mid-quarter policy review, makes the March 15 announcement a 'non-event'," HDFC Bank chief economist Abheek Barua said.
Describing the RBI step as more than expected Vijaya Bank Chairman and Managing Director Upendra Kamath said it will indirectly help his bank's profitability as call money rates and the cost of certificates of deposits, which have been on fire for quite some time now, will cool.
However, he was quick to add that this will not lead to any reduction in the bank's lending rates.
When asked whether Friday's action makes the March 15 review a non-event, he avoided a direct answer.
Central Bank of India chief M V Tanksale said the apex bank will probably keep the monetary instruments untouched in the mid-quarter review, adding the CRR cut does not "compel" any bank to reduce lending rates immediately.
He said the yield on the benchmark government securities will go down as a result of the extra liquidity which gets generated.
Oriental Bank of Commerce Chairman and Managing Director S L Bansal, said the move will lead to a cooling off in the short-term rates. He also said that this will make the 15th review a non-event, adding any policy rate cut will happen only in the regular policy in April.
Referring to 10-year Government-securities (G-Secs) yields, Vijaya Bank Executive Director Subhalakshmi Panse said the rate was expected to come down by 8 to 10 bps in the coming week, which closed at 8.28 per cent for 10 year G-Secs on Friday.
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