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Amid economic slowdown, State Bank of India today said it expects the Reserve Bank to cut Cash Reserve Ratio (CRR) by 1% to boost growth as well as to improve profitability of banks.
"We expect the RBI to cut CRR by 1%...We have made a request but it for RBI to take a call. We would be happy if there is 1% CRR cut. It will recharge lot of investors sentiments, the economy and also stock markets," SBI Chairman Pratip Chaudhuri told reporters on the sidelines of a meeting of heads of PSU banks with the Finance Minister.
CRR is the the portion of deposits that banks are required to keep with the central bank. Chaudhuri said CRR was a more effective tool in spurring growth than policy rate reduction by the central bank. "CRR cut is definately more useful. CRR cut is any day six times more effective than a rate cut," he said. If there is CRR cut, Chaudhuri said, it will improve the profitbility of banks and it would reduce the requirement of government to re-capitalise the banks.
"For example, if there is 1% CRR cut, it will release Rs 60,000 crore in the system which will help banks to earn Rs 5,000 crore of additional profit," he said. The Reserve Bank of India (RBI) in its mid-quarter review of monetary policy on June 18 is widely expected to announce steps to boost sagging economic growth, which dipped to nine-year low of 6.5% in 2011-12. Meanwhile, as per the latest data released by the Central Statistical Organisation (CSO), industrial production growth rate during April slowed to 0.1 per cent from over 5.3% in the same month a year ago.
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