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Ahead of the monetary policy review, the Indian Banks’ Association (IBA) has sought a 50-basis point cut in the cash reserve ratio (CRR). CRR indicates the amount kept with the Reserve Bank of India (RBI) by banks. At present, CRR is four per cent.
IBA Chairman T M Bhasin on Monday said the repo rate window does not give any advantage (for bringing cost of funds down), as banks, which are fund surplus, are not borrowing from RBI.
The central bank has already reduced the repo rate twice (each rate cut at 25 basis points) in 2015. The next monetary policy will be announced on June 2.
A 50-basis point cut in CRR would release about Rs 40,000 crore into the system, which could be deployed to earn interest income. “It would help protect interest margins,” Bhasin said.
Banks have been reducing interest rates on deposits to reduce fund costs and pass on the benefits to customers. Now, there is no room to bring them down further. The interest rate on small savings and other government schemes remain high at nine per cent in some cases, IBA said.
Bankers have called for reducing the interest rates on small savings schemes, so that banks do not suffer from funds flowing out from them, Bhasin said.
