Will Rajan heed bankers' demand to cut CRR?

In a pre-monetary policy meeting between bankers and top official of the Reserve Bank of India (RBI), the latter have sought a cut in the cash reserve ratio (CRR) by 50 basis points for monetary transmission to be smooth.

CRR is the proportion of total deposits a bank has to keep with RBI as cash. It is currently at four per cent of a bank's Net Demand and Time Liabilities.

This does not earn them interest. A look at the reasons why bankers want a CRR cut, while experts believe it might not happen:

BANKERS' RATIONALE FOR THE CRR CUT

• Free part of money which earns no interest.
   
• Can deploy in securities to get returns
   
• Reduce effect of costs.

EXPERTS' REASONING FOR NO CUT IN CRR

• CRR is a liquidity management tool used by RBI and liquidity is currently comfortable.
   
• If there is no credit demand then boosting liquidity might not help in creating it.
   
• A repo rate cut at this juncture will help boost growth which might lead to credit demand going forward.