SBI ready to cut lending rates
State Bank of India (SBI) has said that it is likely to bring down its lending rates if the Reserve Bank of India (RBI) withdraws the additional 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%.
SBI is flush with funds, having received Rs 2.32 lakh crore in its current and savings account following demonetisation. Against these deposits, total outflows have been only Rs 83,000 crore, resulting in a net addition of Rs 1.5 lakh crore. However, nearly half of these incremental deposits are locked with the RBI in the form of CRR.
The RBI is widely expected to cut 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% CRR requirement that the central bank has imposed on incremental deposits on the increase in deposits between September 16 and November 11. The sudden imposition of CRR requirements resulted in banks being forced to borrow from the RBI to meet new regulations. Hopes that the CRR requirement would be lifted soon rose after the government hiked the amount of special bonds that it would issue to Rs 6 lakh crore. Bankers say that since liquidity in banks will not increase by Rs 6 lakh crore, limits might have been hiked to impound liquidity released after relaxing CRR.