Theme: Economy

RBI leaves Policy Rate Unchanged, Cuts CRR+

RBI exercised its clear autonomy
Over policies of Indian economy
When it did not heed
In words or deed
FM’s clear message
For a *Policy Rate change!

A mere 25 basis points **CRR reduction
Is clearly at variance with FM’s direction
Of supporting growth over inflation
As a process of fiscal consolidation.

Despite the CRR-cut induced liquidity
Banks have clearly shown no alacrity
Towards reducing their lending rates
To bring cheer at their borrowers’ gates!

Banks would prefer to wait
For a reduction in Bank Rate
To protect their bottom line
Hit by ***CDR Provisioning landmine…

As common folks let us see
If banks’ Wait & Watch policy
Brings any lending rate relief
Reinforcing government’s belief
That process of fiscal consolidation
Will enhance growth, but inflation…?

+(The Hindu online edition – 30 October, 2012)

*Policy Rate

RBI lends to the commercial banks through its discount window to help the banks meet depositor’s demands and reserve requirements for long term. The interest rate the RBI charges the banks for this purpose is called Bank Rate. If the RBI wants to increase the liquidity and money supply in the market, it will decrease the bank rate and if RBI wants to reduce the liquidity and money supply in the system, it will increase the bank rate. Currently the Bank Rate is 9.0%.

**CRR - Cash Reserve Ratio -  Every commercial bank has to keep certain minimum cash reserves (currently 4.25% of its total Demand & Time Liabilities viz. deposits) with RBI. This is to protect depositors’ interests in case of a run on the bank…). The latest CRR cut of 0.25% has released Rs. 17500 crores to the banks improving their liquidity.

***CDR – Corporate Debt Restructuring – RBI has raised provisioning for restructured loans by banks to 2.75% from 2% - considered a steep hike that may hit the bottomline of the banks…


More By  :  Padmaja Iyengar-Paddy

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