CRR cut to improve lenders' margins, may lift credit growth

The Reserve Bank of India's (RBI's) decision to cut the cash reserve ratio (CRR) by 50 basis points, injecting liquidity of ₹1.16 trillion into the banking system, is expected to reduce costs for banks and provide a much-needed boost to credit offtake, which has slowed in recent months.

- SUBRATA PANDA & ABHIJIT LELE

Of late, banks have been grappling with higher deposit costs.

Additionally, the CRR cut is likely to be accretive to banks' margins and return on assets (RoA), supporting their financial performance, said bankers and industry experts.

On Friday, while the RBI's six-member rate-setting panel decided to keep the policy rate, the repo rate, unchanged for the eleventh consecutive time, it cut the CRR for banks by 50 basis points (bps) to 4 per cent from 4.5 per cent of net demand and time liabilities (NDTL) in two equal tranches of 25 bps each with effect from the fortnight beginning December 14 and December 28. The cut will restore the CRR to 4 per cent of NDTL, which was prevailing before the commencement of the policy tightening cycle in April 2022.