CRR cut by 0.25%, banks can lend more

Retail customers hoping for a rate cut may feel let down by the Reserve Bank of India, which left the key interest rates unchanged on Monday.

Retail customers hoping for a rate cut may feel let down by the Reserve Bank of India, which left the key interest rates unchanged on Monday.

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But the bankers, which stand to benefit from the 0.25 percentage point cut in the cash reserve ratio (CRR) to 4.5% from 4.75%, are cheering the move.

The CRR is the share of deposits that banks need to maintain with the RBI. Monday’s cut is expected to free up R17,000 crore of cash for banks.

“Given the comfortable liquidity and the recent reduction in deposit rates by banks, interest rates in general could be expected to trend downwards gradually,” said Chanda Kochhar, managing director and chief executive officer, ICICI Bank.

For now, though, interest rates on home and auto loans are unlikely to come down because the banks base their calculations on the cost at which they get funds. “Banks will wait till their funding cost comes down significantly,” said Kajal Gandhi, banking analyst at ICICIdirect.com.