CRR cut may lead to lower rates on retail loans says Crisil

The 0.25 per cent cut in cash reserve ratio ( CRR) is likely to bring down interest rates especially in the retail segment, which includes home loans, car loans, personal loans etc.

"Release of these non-income generating funds will marginally lower the cost of funds for banks. The lower cost of funds can help bring down lending rates on select portfolio, especially in the retail segment," says Crisil in a statement.

The RBI has reduced the cash reserve ratio (CRR) by 25 basis points to 4.5 per cent when it announced the Monetary Policy today. The other keys rates which include repo rate, reverse repo rate and bank rate, were however unchanged. .

"The move is expected to increase liquidity in the banking system by Rs 170 billion. The CRR cut is also expected to contain liquidity pressures that may arise from advance tax outflows and festival-related currency demand," Crisil stated.

CRISIL Research expects aggregate bank credit to grow by 15-16 per cent in 2012-13. "Growth will be led by increase in demand for retail loans during festive season, a slight improvement in investments expected in the second half of the year and the likely refinancing of foreign currency loans with domestic debt," the credit rating agency stated.

Bank deposits are expected to grow by 14-15 per cent as per Crisil estimates. "Factors such as lower household savings rate, lower rate of interest on deposits, high inflation and lesser emphasis on mobilisation of high-cost deposits by public sector banks will moderate the growth in bank deposits," it adds.