RBI cuts daily CRR requirement to 95%

KOLKATA: Reserve Bank of India Governor Raghuram Rajan on Friday cut the percentage of cash reserve ratio ( CRR) that banks must maintain with the central bank daily to 95% from 99%, but rejected bankers’ contention that maintaining a high balance was a major cost for them.

“This (maintaining high daily CRR) is made out to be a much bigger hardship than what we have seen through the past data,” Rajan said on Friday after announcing the mid-quarter review of monetary policy.

The RBI had in July increased daily cash reserve ratio (CRR)— or, the amount of deposits banks must keep with the central bank — to 99% from 70% as part of its liquidity tightening moves to check volatility in the foreign exchange market. The CRR is currently 4% of a bank’s deposits and it’s settled in every fortnight.

Rajan said that RBI data showed little impact on banks’ fund position due to the increase in daily CRR requirement. “CRR that they maintain is with historic regard based on the number they already know. They were maintaining 102%,” he said in a customary media interaction immediately after the policy announcement.

He said the cut in daily CRR balance to 95% was in the interest of allowing bankers easier management of funds. Bankers welcomed the move.

“We will enjoy a little elbowroom in fund management with 95% maintenance of CRR,” Arun Kaul, chairman and managing director at UCO Bank, said.