Moneycontrol Bureau
Ahead of the mid-quarter monetary policy on March 15, the Reserve Bank of India (RBI) stepped in to ease the tight liquidity conditions in the system. It slashed the cash reserve ratio (CRR) by 75 basis points to 4.75%. The market was expecting a cut of 50 bps. This move is expected to pump in Rs 48,000 crore liquidity support into the market.
CRR is the portion of net demand and time liabilities (NDTL) (read, total deposits) that banks have to mandatorily keep with the regulator. This means, from March 10 onwards, banks are now required to keep only 4.75% of their NDTL instead of 5.50% earlier.
"Despite (earlier) measures, the liquidity deficit has remained large on account of both structural and frictional factors. This was reflected in the net average borrowing under the RBI's liquidity adjustment facility (LAF), rising from an average of Rs 1,29,200 crore in January 2012 to Rs 1,40,500 crore in Feb. Net injection of liquidity through LAF rose to a peak of Rs 1,91,700 crore on March 1, 2012," RBI said in a release.
In the last few weeks, banks were seen (net) borrowing more than Rs 1.50 lakh crore from the RBI's liquidity adjustment facility (LAF) on daily basis. Banks
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