InvestorQ : What is the purpose of the CRR cut and how will that help the banks improve their lending to customers?
Sam Eswaran made post

What is the purpose of the CRR cut and how will that help the banks improve their lending to customers?

Answer
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swati Bakhda answered.
7 months ago


The RBI supplemented the rate cut with a CRR cut too. CRR is the cash reserve ratio that banks maintain with the RBI. RBI cut the CRR from 4% to 3% of the net demand and time liabilities (NDTL). This is expected to infuse about Rs.137,000 crore liquidity in the system. To get a real picture, you must look at this more comprehensively. If you add up the bond buying and the LTRO taken up by the government, the total infusion of liquidity will be to the tune of Rs.374,000 crore ($50 bn). This is important in two ways. Firstly, it will ensure that yields don’t become volatile due the liquidity shortfall in the system. Secondly, the CRR cut will help bring down yields at the short end and ensure that the yield curve does not get distorted.