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Analysts comment on RBI’s CRR measure

Analysts comment on RBI’s CRR measure

Some market analysts feel that the recent step by Reserve Bank of India to hike daily average CRR requirement of banks is akin to a CRR hike.

It may be recalled that recently the central bank mandated banks to maintain higher average CRR (cash reserve ratio) of 99 per cent of the requirement on daily basis as against the earlier 70 per cent. CRR is portion of deposits that banks are required to keep with RBI.

The measure is aimed at tightening rupee liquidity and thereby prevent further depreciation of the local currency against dollar.

Banks will now have to maintain 4 per cent CRR all through the fortnight. Assuming that banking industry maintains 70 per cent daily balances, it would mean that Rs 75,000 crore of liquidity being sucked out, some reports indicate.

The other measure of limiting the bank’s borrowings under LAF at 0.5 per cent of NDTL would further exert pressure on the short term rates, analysts feel.

Some of the banks, especially some PSBs which used their surplus SLR to borrow under LAF for treasury benefits could see those gains wane.

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