Bankers urged the Reserve Bank of India (RBI) to reduce the cash reserve ratio (CRR) by 50 basis points in its Annual Policy on May 3.
Bankers want the central bank to reduce CRR as such a move would release cash into the system and ease liquidity pressure. CRR is the portion of deposits that banks have to set aside with the RBI.
Bankers said this to RBI during a consultation meeting between them. The shortfall in liquidity is partly attributed to the sluggish growth in deposit growth and pick up in credit growth.
But bankers are reportedly divided on whether RBI should reduce CRR or conduct open market operation to ease liquidity constraint in the banking system.
Bankers also want the RBI to reduce the repo rate (the interest rate at which banks borrow short-term funds from the RBI).
On March 18, the central bank reduced the repo rate by 25 bps to 7.50 per cent in its mid-quarter review of the monetary policy.
However, it warned that higher inflation and a wide current-account deficit left limited room for any further rate reduction.