After RBI’s CRR spanner, banks can’t cut lending rates as much as expected

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An image of RBI headquarters in Mumbai (Photo: Kamlesh Pednekar)

Upset by the Reserve Bank of India’s (RBI) decision to charge the entire deposits that banks collected between September 16 and November 11 as a reserve requirement, bankers have said they would not be able to cut lending rates as much as was expected of them.

Banks would now be scrambling to manage enough liquidity for their healthy functioning even as the general public continues to pour in deposits of old high-value notes and the restriction of cash withdrawal prevents adequate outflow of the money deposited.

In a surprise announcement on Friday, RBI had said an incremental cash reserve ratio (CRR) of 100% would need to be maintained on deposits collected during the period mentioned above. Under normal circumstances, CRR is only four% of deposits. Banks don’t earn any interest on CRR.

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