According to RBI data, the net liquidity surplus has declined from Rs 2.87 lakh crore on September 5 to Rs 2.36 lakh crore on September 8, a drop of over Rs 50,000 crore in just three days.
The cut in the cash reserve ratio is expected to infuse Rs 2.5 lakh crore into the banking system which, banks hope, will improve lending sentiments during the upcoming festival season.
The timing of the CRR cut is crucial because between September and November, India witnesses a festive season due to which currency leakage from the banking system increases, putting pressure on systemic liquidity.
A 50 bps CRR cut can free up around Rs 1.20 lakh crore worth of banks’ liquidity which lenders can use for lending or parking in money market instruments, thus accruing recurring returns which gets added to the bottomline.
Banking system has received liquidity worth Rs 1.16 lakh crore after the CRR cut by the RBI. The liquidity was infused in two tranches on December 14 and December 28.
The RBI reduced the Cash Reserve Ratio (CRR) by 0.5% (50 basis points) to 4%.
The RBI's decision to hold the repo rate steady was largely in line with market expectations, though it initially led to a dip in banking stocks. However, the CRR cut announcement revived investor sentiment.
This was announced despite the liquidity in the banking system is deficit of around Rs 23,111.43 crore.
The central bank’s steps and commentary imply that inflation is going to rule firm and rates are likely to remain high in the foreseeable future
More time to comply with PSL requirements takes away the immediate burden from the bank. Similarly, clarity on holdings in investments and subsidiaries will clear air for investors.
Short term rates could rise, not much impact on 10-year yields
System liquidity has huge implications on the conduct of the monetary policy and the current holy grail of ‘monetary transmission’
As expected there was no surprises from the monetary policy and it shows that the RBI remains data determined. The expectation is that they will remain on hold for the foreseeable future, said Sajjid Chinoy of JP Morgan.
Main focus of the monetary policy is on liquidity and further action depends on whether RBI thinks liquidity is permanent or transitory, Sonal Varma, MD & Chief India Economist at Nomura Financial Advisory & Securities (India) said.
Both V Srinivasan of Axis Bank and Ashish Parthasarthy of HDFC Bank agree that the withdrawal limit could extend beyond December 30 because the limit depends on the availability of currency.
The Reserve Bank today permitted banks to include now defunct Rs 500 and 1,000 notes as part of their cash balance, a move that may provide relief to banks.
Nilesh Shah, MD, Kotak Mahindra AMC is confident that market will not move in a unidirectional manner but would remain volatile, adding that although he has not turned bearish on the market, he would focus more on ground realities.
The government's move to slash interest rates on all small saving schemes will pave the way for a market linked interest rate structure and enable faster monetary transmission, says a Deutsche Bank report
Economists say the key takeaway from the RBI monetary policy would be the inflation target by Governor Rajan.
The Reserve Bank of India Tuesday kept the benchmark repo rate unchanged at 7.25 percent as well as the cash reserve ratio (CRR) at 4 percent.
Last month, HDFC slashed interest rates by 0.25 percent on home loans. The new rates for HDFC home loans of up to Rs 75 lakh have come down to 10.25 percent, from 10.50 percent.
State Bank of India chairman Pratip Chaudhuri, expects SBI‘s net interest margins to be in the range of 3.55-3.60 percent. He said he has recommended to the RBI that it reduce Cash Reserve Ratio by 1 percentage point.
advices against buying Yes Bank at the current moment because although it is a good stock, there are huge deliveries taking place in the stock.
SBI has registered substantial credit growth in its retail segment. Meanwhile, SBI recently told media that it needs Rs 2,30,000 crore in additional capital to meet the stringent Basel-III requirements till 2018.
Measures taken by RBI to arrest the fall of rupee could have deep repercussions for the stock and bond market says CNBC-TV18's, managing editor, Udayan Mukherjee.