The Reserve Bank of India (RBI) has made a big change by lowering the Cash Reserve Ratio (CRR) for the first time since March 2020. This means banks will now have more money to lend to people and businesses. Specifically, the RBI reduced the CRR from 4.5% to 4%, which will add about ₹1.16 lakh crore (that’s a huge amount!) into the banking system.
With this extra money, banks can relax their high deposit rates, which makes borrowing cheaper for everyone. However, interest rates on loans might stay the same for now. Rajiv Anand from Axis Bank explained that this action will help banks improve their earnings by 3 to 5 basis points. A basis point is a way to measure interest rates, and it works like this: 1 basis point is just 0.01%.
RBI Governor Shaktikanta Das mentioned that although they expect money to get tighter in the future due to tax payments and other reasons, this CRR change is still an important step to keep the banks healthy. While it will help with immediate cash flow, bankers believe that faster growth and lower inflation could lead the RBI to change interest rates down the road.
Although this update is good news for banks, deposit rates for regular savers are unlikely to go up, so people shouldn’t expect higher returns on their savings. Even though inflation is rising, Santosh Kumar from Punjab National Bank said the CRR cut was the best choice for the RBI right now.
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