The Reserve Bank of India?s move on Friday to cut the cash reserve ratio (CRR) for banks by 150 basis points to 7.5%, thereby unlocking Rs 60,000 crore of funds, has brought some cheer for bankers, wary of a tight liquidity situation in the domestic markets.
Hoping that RBI measures would ease liquidity situation, MD Mallya, chairman & managing director of Bank of Baroda said, ?It would ease liquidity substantially. There are other things?government expenditure and the payment of farm loan waiver?that would boost liquidity. As of now liquidity was related to the market for the short-term only. For the long-term needs, we will have to look for mobilising deposits and other resources.?
According to Allen CA Pareira, CMD of Bank of Maharashtra, ?It was very timely and necessary. It will certainly take care of the banks? liquidity problem for at least another couple of months.? However, the long-term liquidity will depend on the fact that how much credit-deposit (C-D) ratio, which was being maintained by each bank. Credit off-take normally goes up during the second half of the year, particularly in sectors like infrastructure and agriculture. All this would make the industry needing more liquidity.
B Sambamurthy, Corporation Bank chairman and managing director, said, ?We are not having any other problems relating to either getting capitalised or even recapitalised, which are affecting the rest of the world. Rather, our problem in India is liquidity.??
In the last four years, the central bank had tightened the liquidity for the banking industry by constantly hiking the CRR and repo rate. Both were at 9% till last week when RBI twice announced CRR cut, fuelling expectation that the central bank may go for rate cut in its half yearly review of monetary policy.
The RBI decision came after overnight call rates, the rate at which banks lend to each other, had touched 23% last week, leaving the banks gasping.
Analysts point out that RBI is facing a precarious situation with regard to further liberalise its tight money policy as credit demand in the system has remained at 24.8% against its target of 20% while the money supply rose by 19% (against a target of 17%) as on as on September 26. However, it has slowed down from 21% recorded two weeks earlier.
The forex reserves as on October 3 have also fallen by $7.9 billion to $283.9 billion. The deposit in the banking industry at Rs 34, 42, 138 crore and has shown an annual growth of 19.8%, as on September 26.