CRR cut: banks get Rs 60,000 cr more
The RBI trebled the amount of funds it would infuse into the liquidity-starved banking system , in a biggest-ever monetary action in response to the fast worsening economic conditions globally.india Updated: Oct 10, 2008 20:31 IST
The Reserve Bank of India (RBI) trebled the amount of funds it would infuse into the liquidity-starved banking system by Saturday, in a biggest-ever monetary action in response to the fast worsening economic conditions globally.
An amount of Rs 60,000 crore would be directly available for use by banks, which have been borrowing Rs 60,000 to Rs 70,000 crore for two weeks now. The RBI cut the cash reserve ratio (CRR), the proportion of deposits banks have to set aside as reserves, to 7.5 per cent from 9 per cent, against the earlier plan of lowering it to 8.5 per cent.
On Wednesday, eight central banks around the world had cut rates to save their respective economies from slipping into a recession. The so far biggest monetary policy action by the RBI is still being considered inadequate, beyond immediate relief. Bankers hope there would be more doses of funds infusion.
“It (the CRR cut) is not enough,” said TS Narayanasami, CMD, Bank of India. “More and more doses need to come.”
“Market participants are assured that the Reserve Bank stands ready to respond swiftly to meet any liquidity requirements that may arise in the context of the highly volatile external situation,” the RBI said in a statement.
“The reduction in the CRR is a welcome step given the current rupee liquidity conditions,” said Chanda Kochhar, Joint MD and CFO, ICICI Bank. “This should have a cooling effect on the market and ease liquidity.”
The interest rates in the call money market, where banks borrow from each other for up to three-four days, hit the day’s high of 23 per cent in the morning. The increase in CRR cut did not calm the inter-bank lending market with call money rate remaining elevated at around 19 per cent.