Sensex slips, RBI cuts CRR

The RBI on Wednesday reduced the CRR—the proportion of deposits that banks have to maintain in cash with the central bank—by one percentage point to 6.5% from 7.5%. This is estimated to release an additional Rs 40,000 crore for banks to lend. Prior to this, the central bank had last week announced a cut in CRR by 1.5 percentage points to be effective from Monday this week. Together, these cuts in CRR have added Rs 100,000 crore in liquidity for banks. Besides this, at the Centre’s request, the RBI has agreed to provide Rs 25,000 crore to banks that have participated in the farm debt waiver and relief scheme.The central bank also decided to keep open the Rs 20,000 crore credit window for banks to borrow from it in order to lend to mutual funds until the amount gets exhausted. This window, which was initially on offer for Tuesday alone, had to be extended since just Rs 3,500 crore were sought by banks on the opening day. On Wednesday too, only Rs 200 crore was asked for by a single bank.Bankers expect these moves to cool down inter-bank lending rates. CRR cut from 7.5% to 6.5%, banks get Rs 40,000 cr more to lend Rs 20,000cr window for banks to borrow from RBI for lending to MFs extended till further notice RBI to give banks Rs 25,000 cr as first instalment of reimbursement for farm loan waivers .These measures, along with CRR cuts announced earlier, mean banks have got Rs 1,45,000 cr extra to lend over the last three days. Interest rates on NRI accounts hiked by 0.5 percentage points.

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