RBI Cash Reserve Ratio: Recently, the Reserve Bank of India has announced that the cash reserve ratio (CRR) will be the entire lending amount i.e. it would be 100 percent. Since long, it was being expected that the lending rates will be cut down, however, as of now, this would not happen anytime soon.
Ever since demonetisation has been introduced into the system, the citizens have been depositing the old currency in the banks and the withdrawal limit has also been minimal. Earlier, the cash reserve ratio was four percent. However, under the current circumstances, the CRR has been increased abnormally.
RBI Cash Reserve Ratio increased to 100 percent
“Also, banks will have to resort to the selling of government securities under repo operations in order to manage their liquidity position. This, in turn, could lead to a rise in the yield of government papers“, an SBI report said.
Liquidity infusion was done on Monday by the RBI amounting to Rs 3.3 lakh crore. Further, the RBI stated that another liquidity infusion will be made on Tuesday of the amount Rs 1 lakh crore.
“We do think the banks need to be compensated for this. I believe RBI is well cognisant of the fact…It would have been good if our earnings were not hurt like this. I don’t have any specific compensation in mind, but let’s see if we get something from the government or RBI.”
-State Bank of India (SBI) chairman, Arundhati Bhattacharya.
“It becomes somewhat difficult to pass on the benefits of lower cost of funds. It is expected to be a short-term situation, as RBI will revise the decision on December 9 or earlier“, said K P Nair, deputy managing director, IDBI Bank.
The banks stand at a loss because they would not be allowed to withdraw their cash reserves deposited with the RBI under the reserve repo rate (on which they earn interest) till the money crunch eases in the economy.
That’s shocking!