India's central bank has decided not to give in to growing political pressure to cut lending rate that caused slowdown in growth. The Reserve Bank of India (RBI) slashed cash reserve ratio (CRR) by 25 bps while leaving lending and borrowing rates unchanged in the second quarter monetary policy review. With 25 bps cut, the revised CRR stands at 4.25%, which will pump Rs 175 billion as additional liquidity in the banking system. The repo and reverse repo rates continue to stands at 8% and 7% respectively.
Commenting on the RBI policy, Shyam Srinivasan, managing director & CEO, Federal Bank, ''CRR cut of 25 bps would release Rs 175 billion in the system. Even if deployed at average 10% or so, would add Rs 17.50 billion annual to the bottom line of the banking system. Being festival season, the currency with public will increase and this cut may not be sufficient to meet the deficit. One can expect OMO buying of G-Secs also in the near future."
''Bank financing for buying gold has been banned. It s a very progressive move and would help preventing the bubble formation. Else, it could have resulted in bank loans being used to buy an unproductive asset, which again could have been pawned to raise further resources to buy more gold and so on. Increase in provisioning for restructured assets by 75 bps would help banks to build a chest for prospective slippages,'' he added.
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