Mumbai: After infusing Rs1,85,000-crore liquidity into the banking system, the RBI Saturday effected yet another 100 basis points cut in cash reserve ratio, or CRR, and a 0.5% reduction in key short-term lending repo rate, signaling softening of interest rates to prop up growth.
The 1% point cut in CRR, the amount which banks have to park with the apex bank, has been brought down to 5.5% to infuse additional liquidity of Rs40,000 crore into the system.
The CRR cut will be in two tranches and the first one of 0.5% will be effective retrospectively from 25 October and the second from 8 November.
The RBI also cut the repo rate, the rate at which it lends to banks, by 0.5% to 7.5% with effect from 3 November.
The central bank has also reduced the statutory liquidity ratio, or SLR, the amount which banks are mandated to park in government securities, by 100 basis points to 24%.
Welcoming the decision, ICICI Bank Joint Managing Director Chanda Kochhar said, “It will release much needed liquidity into the system and signal reduction in interest rates.”
The SLR cut would inject about Rs40,000 crore into the banking system.
To provide further comfort on liquidity and to impart flexibility in liquidity management to banks, the central bank has introduced a special refinance facility to scheduled commercial banks.
Under this facility, the banks will be able to borrow short-term funds from Reserve Bank up to a maximum period of 90 days.