RBI's I-CRR will not cause any liquidity shortage for banks, say bankers

Bankers are drawing comfort from the assurance of RBI Governor Shaktikanta Das during the post-policy press conference that the central bank will remain nimble towards liquidity management and act on both sides, they added

The Reserve Bank of India's (RBI) announcement of the Incremental Cash Reserve Ratio (I-CRR) is unlikely to create any liquidity shortage for the banking industry, which in turn could hinder the lending process, bankers told Moneycontrol on August 10.

Bankers are drawing comfort from the assurance of RBI Governor Shaktikanta Das during the post-policy press conference that the central bank will remain nimble towards liquidity management and act on both sides, they added.

"There is the availability of liquidity for credit. For that, I don't think there's any impact because banks have sufficient liquidity available," said Ashwani Kumar, Managing Director (MD) and Chief Executive Officer (CEO) of UCO Bank.

Earlier today, the central bank said that scheduled commercial banks have to maintain an incremental cash reserve ratio (I-CRR) of 10 percent on the increase in their net demand and time liabilities (NDTL) between May 19, 2023, and July 28, 2023. This was announced with the aim of managing the higher surplus liquidity sloshing about in the economy following the return of Rs 2,000 notes to the banking system.

On May 19, the RBI announced the withdrawal of the Rs 2,000 note, allowing citizens to either exchange the note or deposit it in their accounts. On August 1, the central bank said that Rs 3.14 lakh crore worth of Rs 2,000 banknotes, or 88 percent in circulation, had returned to the banking system by July 31.

However, some bankers said that if liquidity does not remain under control, then the RBI can extend the period.

"We are looking at this as a temporary measure, and we hope it remains the same. If the liquidity system is not under control in the prescribed period that the central bank has said, we can expect the central bank to extend I-CRR imposition," said Shekhar Bhandari, President of Global Transaction Banking, Kotak Mahindra Bank.

On the earnings front, Kumar added that there will be little impact, if any, on bank earnings.

At his address, Governor Das highlighted that the central bank considered the imposition of I-CRR desirable in the interest of financial and price stability and that banks would have enough liquidity to do their lending operations.

Also read: Banks to maintain 10% incremental CRR from August 12, says RBI governor

"The Incremental CRR was considered necessary in the background of the liquidity overhang. We considered it desirable in the interest of financial and price stability. It will also have an impact on inflation. It is a purely temporary measure," Das said.

No impact on rates

Suresh Khatanhar,  Deputy Managing Director, IDBI Bank, said banks may not make any changes in their deposit or lending rates after the policy announcement.

On August 10, the Monetary Policy Committee (MPC) unanimously voted to leave the repo rate unchanged at 6.5 percent, Governor Das announced today.

The Standing Deposit Facility rate has also been retained at 6.25 percent. Also, both the Marginal Standing Facility rate and the Bank Rate have been retained at 6.75 percent.

"We were expecting the repo rate to continue to pause, Ashwani Kumar added. From the perspective of the Marginal Cost of Funds-based Lending Rate (MCLR), there is stability in interest rates. Some bands within one or two buckets may see some increase in interest rates, he said.

Also read: Banks to assess interest on floating rates, says Governor Das

The RBI held interest rates unchanged for the third successive time in the current financial year.

On the RBI's decision to increase the transaction limit of UPI Lite to Rs 500 from Rs 200, bankers said the move will increase digitisation.

Launched by the National Payments Corporation of India (NPCI) in September 2022, UPI Lite allows quick small-value transactions by optimising the processing resources of banks, thereby reducing transaction failures.

"Major challenges faced by the banks on UPI are managing small value transactions on the bank’s infrastructure front, as well as reconciliation of the same. In this regard, this pro-consumer initiative by RBI, increasing the UPI Lite threshold, is a welcome move for the banks as well as the economy," said Murali Ramakrishnan, MD and CEO, South Indian Bank.

Also read: RBI MPC: Deputy governor asks banks to 'redouble' efforts on loan recovery

It allows users to conduct transactions of up to Rs 200 a day without the need for a pin code which has reduced the transaction time. While the transaction limit has been raised to Rs 500 now, the UPI Lite balance ceiling has been left unchanged at Rs 2,000 to contain the risks associated with the relaxation of two-factor authentication.

UPI Lite is available on Paytm, BHIM app, Google Pay, and other payment apps. Canara Bank, HDFC Bank, Indian Bank, Kotak Mahindra Bank, Punjab National Bank, State Bank of India, Union Bank of India, and Utkarsh Small Finance Bank are already live in UPI Lite.