Banks want the Reserve Bank to cut the Cash Reserve Ratio (CRR) by 50 basis points in the second bi-monthly monetary policy of the year due on June 2.

CRR, the part of bank deposits parked with the RBI, is a liquidity tool to inject or drain out liquidity from the banking system. Currently, CRR stands at 4 per cent.

“With the inflation easing, there is a possibility for recalibration of the rate. As far as bankers are concerned, the preferable mode is passing on the reduction of CRR, which gives us leeway in reducing rate of interest on advances,” said TM Bhasin, Chairman of Indian Banks’ Association.

“The CRR window helps us bring down the cost of funds…We expect and will request about 50 bps cut in CRR which would release about ₹40,000 crore,” he said, adding that the banking system has surplus liquidity with credit off-take not taking place and hence the repo rate cut doesn’t give banks any advantage.

Since the beginning of this year, the central bank has cut the repo rate twice by 25 bps each, while the banks have not passed on this reduction on their lending rates to that extent.

Currently, the repo rate or the key policy rate at which banks borrow funds from RBI, stands at 7.50 per cent.

IBA, along with State Bank of India, has also asked authorities to bring down interest rates on small saving schemes such as Sukanya Samridhi, NSC (National Savings Certificates) and KVP (Kisan Vikas Patra), to reduce banks’ base rate further.

He said banks have reached the inflection point and any further rate reduction will depend on recalibration of small savings schemes.

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