100 bps cut in cash reserve ratio to boost liquidity, lower cost of funds
The Reserve Bank's move to gradually lower the cash reserve ratio (CRR) of banks by 25 basis points in four equal phases to reach three per cent by the end of the year is expected to boost liquidity in the financial system. This, in turn, should reduce funding costs for banks, making borrowing cheaper for consumers and businesses, thereby encouraging private investment and domestic spending.
CRR is the portion of bank deposits to be kept with the RBI. It does not carry any interest rate.
According to Binod Kumar, MD and CEO, Indian Bank, CRR cut will provide liquidity at the hands of banks. 'We will ensure to pass on rate transmission immediately to support entrepreneurs and keep the economy moving forward,' Kumar said.
The cut in CRR would release primary liquidity of about Rs 2.5 lakh crore to the banking system by December 2025, RBI Governor Sanjay Malhotra said. Banks can lend this money which otherwise wouldn't have fetched them any return as CRR deposits with the RBI.
'Besides providing durable liquidity, it will reduce the cost of funding of the banks, thereby helping in monetary policy transmission to the credit market. I would like to reiterate that we will continue to monitor the evolving liquidity and financial market conditions and proactively take further measures, as warranted,' Governor said.
Malhotra said the comfortable liquidity surplus in the banking system has further reinforced transmission of policy repo rate cuts to short term rates. 'However, we are yet to see a perceptible transmission in the credit market segment, though we must keep in mind that it happens with some lag,' he said.
Lower rates will spur the retail demand especially for affordable housing. Good monsoon coupled with lower rates augurs well for agriculture sector. It will drive consumption and will boost rural demand. 'MSMEs, which are vital to India's economy, will see improved cash flow and more room to grow,' Kumar said.
With a cumulative 100 bps cut in Repo rate over just four months, the central bank has frontloaded its easing cycle. However, by reverting its stance to neutral, the RBI signals that it may now pause to assess the full transmission of these cuts before considering further action.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Economic Times
14 minutes ago
- Economic Times
Higher crude oil prices a net positive for upstream cos, possibly for OMCs too: Kotak Equities
The recent rise in crude oil prices may prove beneficial not only for upstream oil companies but also for oil marketing companies (OMCs), according to a report by domestic brokerage firm Kotak Institutional Equities. ADVERTISEMENT In a recent note, the brokerage highlights that the latest rally in oil prices, with Brent crude being up 15% since early June, could aid upstream companies such as ONGC and Oil India by lifting their net realizations and earnings. "Brent has moved up to US$85/bbl from US$74/bbl earlier in the month," the brokerage said, adding that every US$1/bbl increase in Brent prices adds Rs 2.4–2.5/share to ONGC's EPS and Rs 3.5–4/share to Oil India's EPS, assuming no changes in government levies. According to Kotak, ONGC's base case assumes an oil price of US$80/bbl Interestingly, the brokerage also sees the potential for OMCs to benefit from higher oil prices under current market conditions. 'Oil marketing companies (BPCL, HPCL, IOCL) may benefit too, if the government maintains current pump prices,' Kotak stated. The report notes that despite the recent increase in Brent prices, auto fuel prices have remained unchanged in India, implying potential margin expansion for OMCs. ADVERTISEMENT "OMCs are seeing marketing margins rise to Rs 5.6/liter for diesel and Rs 7/liter for petrol," the report stated, assuming average Brent at US$85/bbl and a USD/INR exchange rate of Kotak points out that HPCL's marketing EBITDA was Rs 3.5/liter in FY24, suggesting that current margin levels may offer substantial upside if they persist. The firm acknowledges that while refining margins remain modest, the improving marketing profitability may offset those concerns. ADVERTISEMENT On refining, the brokerage notes that gross refining margins (GRMs) continue to be relatively weak, with Singapore complex GRM currently at US$3.5–4/bbl, and diesel cracks at US$13–14/bbl, which are below seasonal averages. Also read: HDB Financial Services GMP at 6.3% ahead of IPO. What should investors do? ADVERTISEMENT Nevertheless, the note emphasizes that product cracks are not as weak as GRMs suggest, and that the margins are still acknowledging the volatility in the crude market, Kotak Institutional Equities underlines that higher oil is unequivocally good for upstream companies and may not hurt OMCs in the near term either. ADVERTISEMENT The brokerage firm also stated that it continues to prefer ONGC and Oil India among upstream players and maintains a 'buy' rating on both stocks. (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times) (You can now subscribe to our ETMarkets WhatsApp channel)
Economic Times
14 minutes ago
- Economic Times
IdeaForge bags around Rs 137 crore drone order from Indian Army
Drone technology firm ideaForge Technology has secured an order worth about Rs 137 crore for hybrid mini unmanned aerial vehicles systems from the Indian Army through the emergency procurement route, the company said on Monday. ideaForge said a key requirement during the assessment for the selection of unmanned aerial vehicles (UAV) was that all critical sub-components must be sourced from non-border-sharing nations, and that the platform be substantially indigenous in capability and design. "ideaForge Technology has secured a significant win through the emergency procurement route. The order, valued at approximately Rs 137 crore, has been placed by the Indian Army for its high-performance hybrid Mini UAV systems, which are already battle-tested and inducted into the Army's inventory for ISR (Intelligence, Surveillance, and Reconnaissance) operations," the company said in the statement. The company has its research and development and manufacturing units in Navi Mumbai, Bengaluru, Delhi, and the US.
Time of India
20 minutes ago
- Time of India
IdeaForge bags around Rs 137 crore drone order from Indian Army
Drone technology firm ideaForge Technology has secured an order worth about Rs 137 crore for hybrid mini unmanned aerial vehicles systems from the Indian Army through the emergency procurement route, the company said on Monday. ideaForge said a key requirement during the assessment for the selection of unmanned aerial vehicles (UAV) was that all critical sub-components must be sourced from non-border-sharing nations, and that the platform be substantially indigenous in capability and design. "ideaForge Technology has secured a significant win through the emergency procurement route. The order, valued at approximately Rs 137 crore, has been placed by the Indian Army for its high-performance hybrid Mini UAV systems , which are already battle-tested and inducted into the Army's inventory for ISR (Intelligence, Surveillance, and Reconnaissance) operations," the company said in the statement. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Elegant New Scooters For Seniors In 2024: The Prices May Surprise You Mobility Scooter | Search Ads Learn More Undo Discover the stories of your interest Blockchain 5 Stories Cyber-safety 7 Stories Fintech 9 Stories E-comm 9 Stories ML 8 Stories Edtech 6 Stories The company has its research and development and manufacturing units in Navi Mumbai, Bengaluru, Delhi, and the US.
