RBI's CRR Cut Set to Boost Credit Growth & Strengthen Liquidity

The Reserve Bank of India's decision to reduce the Cash Reserve Ratio (CRR) is poised to bolster credit growth by 1.4-1.5%, as per a report from the State Bank of India (SBI). The adjustment is expected to supplement liquidity within the banking industry while furthering credit availability across the nation's economy.

SBI's analysis indicates that this CRR reduction will potentially release Rs 2.5 lakh crore in primary liquidity by December 2025. Such an influx could enhance financial conditions, thereby promoting economic activity. Moreover, the CRR cut is anticipated to lower funding costs for banks, facilitating effective monetary policy transmission.

While the cut might not immediately affect deposit or lending rates, it is likely to improve banks' net interest margins by 3 to 5 basis points. The decrease in CRR also projects a rise in the money multiplier, possibly exceeding 6% by March 2026. Additionally, CRR is evolving from merely a liquidity tool to serving as a regulatory buffer, safeguarding margins amid global economic challenges.

(With inputs from agencies.)