The CRR requirement for banks now stands reduced to 4.75% as against 5.50% earlier. The CRR cut is effective from Saturday, Marc h 10 and is expected to add liquidity to the tune of Rs 48,000 crore into the banking system.
The timing of the CRR cut and the quantum has taken the markets by surprise. The markets were expecting a CRR cut of 50 bps at RBI's Credit Policy meet on March 15. However, it has just happened before the credit policy. Also, the markets were largely expecting the RBI to cut CRR by 50 bps and hence the 75 bps cut has surprised the markets.
CRR is the amount of money banks have to keep with the RBI as a proportion to their deposits. A cut in CRR means that they need to keep lesser amounts with the RBI, which enables improve their liquidity and amounts to be lent.
Over the last few months banks have been hankering for easing of liquidity conditions and have been borrowing substantial amount from the RBI window.
The Credit Policy of March 15, may not see any repo rate cuts and hence it may be a non event.