By Dr Sanjay Chaturvedi
The Reserve Bank of India (RBI) has increased mandatory cash reserve of banks held by it by 75 basis points in a bid to suck excess liquidity to combat rising inflation. However, short-term lending and borrowing rates between RBI and banks were kept unchanged; leading to speculation those banks` commercial lending rates may not change.
For the last quarter, RBI has sustained its monetary comitment by not changing the short term borrowings. The increase will affect corporate lending and long term fundings. Individual lending raes may not be changed since banks do not want to disturb the priority sector lending of home loans. The growth pattern in home loan sector is giving consistant revenue and a safe passage to mitigate the risk.
The Bank Rate has been retained at 6.0 per cent.
The repo rate under the Liquidity Adjustment Facility (LAF) has been retained at 4.75 per cent.
Reverse Repo Rate
The reverse repo rate under the LAF has been retained at 3.25 per cent.
Cash Reserve Ratio
It has been decided to:
increase the cash reserve ratio (CRR) of scheduled banks by 75 basis points from 5.0 per cent to 5.75 per cent of their net demand and time liabilities (NDTL) in two stages; the first stage of increase of 50 basis points will be effective the fortnight beginning February 13, 2010, followed by the next stage of increase of 25 basis points effective the fortnight beginning February 27, 2010.
As a result of the increase in the CRR, about Rs. 36,000 crore of excess liquidity will be absorbed from the system.