SBI Will Slash Rates If Given Relief in CRR

State Bank of India (SBI) mentioned that it is expected to cut

its lending rates if the Reserve Bank of India (RBI) calls off
the extra cash reserve ratio (CRR) requirement imposed in
the wake of the surge in bank liquidity. Meanwhile, Bank of
India has already cut its one-year benchmark lending rates
by 5 basis points to 9.25 per cent.
Rajnish Kumar, SBI managing director informed that the
bank will review its benchmark rates on 9th December. If the
additional requirement of CRR is pulled down, it will help them in passing on the benefit
to borrowers.
SBI is flush with funds, having acquired Rs 2.32 lakh crore in its current and savings
account after the demonetization. Against these deposits, total outflows have been only
Rs 83,000 crore, which will result in a net addition of Rs 1.5 lakh crore. But, nearly half
of these incremental deposits are locked with the RBI in the form of CRR.
The RBI is anticipated to slash its key policy rate by 25 basis points (or bps, where
100bps = 1 percentage point). But what is holding up interest rates is the 100 per cent
CRR requirement that the central bank has levied on incremental deposits on the
increase in deposits between September 16 and November 11. The unexpected
imposition of CRR requirements resulted in banks being forced to borrow from the RBI
in order to meet new regulations.
With demonetization, bank deposits have increased. Nonetheless, economic growth is
likely to be depressed for the coming two quarters with different sectors being severely
affected on the back of cash crunch and contracted consumer demand. Inflation rates
are anticipated to be within RBI's target. Thus, in order to boost growth, further easing
of monetary policy is expected. A 25-50 bps rate cut can be expected by the RBI for the
remainder of the fiscal year.
Intraday on Wednesday, SBI share price opened above 0.89 per cent at Rs. 260.35. The
stock is trading at Rs. 261.40 (up by 2.30 points).

Rakesh Sharma, Canara Bank MD and CEO is of the view that with softening of inflation,
the hope that RBI may go for a 25 basis point rate cut in the upcoming policy.
As per Bandhan Bank MD, Chandra Shekhar Ghosh, there is an expectation of a 0.25 per
cent cut in repo rate as the October inflation has shown a decline and the
demonetization drive is further expected to lower inflation in November.

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Article Written by
Madhurima Chowdhury