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Bankers hope for CRR cut

Bankers suggested a cut in cash reserve ratio or CRR (this is the minimum percentage of deposits banks have to maintain with RBI) to ease the liquidity situation. They also apprised the RBI officials about the slowdown in the credit growth at the 'pre-pol

BMW MINI Cooper S
BMW MINI Cooper S

Reserve Bank of India met with top bankers on Tuesday for ‘pre policy’ consultations before the credit policy announcement on 24 January 2012.

Bankers suggested a cut in cash reserve ratio or CRR (this is the minimum percentage of deposits banks have to maintain with RBI) to ease the liquidity situation. They also apprised the RBI officials about the slowdown in the credit growth.

Chanda Kochhar, MD, ICICI Bank said that the state of the economy, credit growth, deposit growth were topics discussed at the meeting.

“Concerns about asset quality were raised. But I would not like to second guess on what the RBI will do in its policy,” she said.

On a broader consensus, while a reversal in the rate hike cycle is being pretty much ruled out, bankers like HDFC & Bank of Baroda seem to be advocating for at least a CRR cut.

The meeting assumes importance in the current environment as the debate over possible interest rate cuts by the reserve bank gets louder.

The steps are required as liquidity continues to remain tight in the market.

The RBI has already pumped in over 1 lakh crore rupees in the system every day through the LAF window. It has also conducted OMOs, through which, the RBI has infused over Rs 41,000 crore in 5 tranches in the past few weeks

According to M D Mallya, Chairman, Bank of Baroda, RBI is certainly going to take a view on a CRR cut and maybe even a change in the policy keeping the economic fundamentals in mind.

Bankers have also flagged off concerns about worsening asset quality and the rise in restructured loans in the meeting, especially in sectors like textiles and steel.

The RBI was also apprised of the credit growth slowdown as banks struggle to meet the 18 per cent credit growth target.

All eyes will now be on the crucial inflation data that comes out early next week to see whether the reserve bank will give growth precedence over inflation.

However, the December inflation is expected to fall sharply to near 7.4 per cent.

But it is the manufactured goods inflation data that will be watched closely as any negative surprises there will quash hopes of a rate cut.