RBI's Cash Reserve Ratio cut to boost credit growth by 1.4 to 1.5 per cent: SBI Report

ANI June 19, 2025 334 views

The RBI's CRR reduction is expected to boost credit growth by 1.4-1.5% while releasing Rs 2.5 lakh crore liquidity into the system. Banks may see improved net interest margins of 3-5 basis points despite no immediate rate changes. The move aligns with RBI's shift to using CRR as a countercyclical buffer while supporting economic activity. SBI projects the money multiplier to rise above 6% by 2026 as liquidity conditions ease.

"CRR cut will free-up lendable resources equivalent to 1.4-1.5% of additional credit growth" - SBI Report
New Delhi, June 19: The recent cut in the Cash Reserve Ratio (CRR) during the monetary policy announcement by the Reserve Bank of India is expected to create room for additional credit growth of 1.4-1.5 per cent, according to a report by the State Bank of India (SBI).

Key Points

1

RBI CRR cut to release Rs 2.5 lakh crore liquidity by 2025

2

Credit growth may rise to 13.5% in FY26

3

Banks' NIM to improve by 3-5 basis points

4

Money multiplier expected to cross 6% by March 2026

The move is likely to strengthen liquidity in the banking system and improve credit flow to the economy.

It said "CRR cut will free-up lendable resources which will get headroom equivalent to 1.4-1.5% of additional credit growth"

Credit growth in FY24-25 slowed to around 12 per cent compared to 15 per cent in the previous year. The slowdown was partly attributed to stricter regulatory measures taken by the Reserve Bank of India (RBI). But with CRR and repo rate cuts it is expected to rise in FY 25-26.

The SBI report highlighted that the CRR cut is estimated to release around Rs 2.5 lakh crore in primary liquidity by December 2025. This liquidity infusion is seen as a positive step towards easing financial conditions and supporting economic activity.

The report also noted that apart from providing durable liquidity, the CRR cut will lower the cost of funds for banks, which may help in smoother transmission of monetary policy to the credit market.

However, it added that the reduction in CRR may not directly lead to a change in deposit or lending rates. But, the move could support bank profitability by improving net interest margins (NIM) by around 3 to 5 basis points.

Additionally, with the reduction in CRR, the money multiplier, which shows how much the money supply increases with the base money, may rise above 6 per cent by March 2026.

SBI observed that CRR is no longer just a liquidity management tool but is increasingly being used as a regulatory and countercyclical buffer. This shift helps banks optimise returns on their resources and protect their margins in a changing financial environment.

The report also pointed out that the RBI's recent foreign exchange swaps, aimed at stabilising the rupee amid global uncertainties, are expected to mature without causing any liquidity stress.

Lastly, the CRR cut is expected to help align overnight and term money market rates more closely with the RBI's policy rates.

As the Weighted Average Call Rate (WACR) has been diverging from broader market benchmarks like TREPS and CBLO, the move also supports a quicker shift towards a Secured Overnight Reference Rate (SORR)-based framework.

Reader Comments

Here are 6 diverse Indian perspective comments for the RBI CRR cut article:
R
Rajesh K.
Good move by RBI! This will help MSMEs get easier loans. Last year my small business struggled to get working capital. Hope banks pass on the benefits quickly. 🇮🇳
P
Priya M.
As someone planning to take home loan next year, I'm cautiously optimistic. But will banks actually reduce lending rates or just enjoy higher profits? RBI should monitor this closely.
A
Amit S.
₹2.5 lakh crore liquidity injection is massive! This could boost stock markets too. But hope RBI maintains inflation control - we've suffered enough with high vegetable prices already.
S
Sunita R.
RBI's balancing act continues... Last year they tightened, now easing. As a retired person, I worry about FD rates falling further. Savings interest is already very low 😔
V
Vikram J.
Smart policy move! Using CRR as countercyclical buffer shows RBI's maturity. This will help maintain stability during global uncertainties. More power to our economic managers 👏
N
Neha P.
Hope this liquidity reaches rural areas where credit growth is weakest. Urban-centric policies won't help farmers and small entrepreneurs in villages who need it most.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

Leave a Comment

Your email won't be published


Disclaimer: Comments here reflect the author's views alone. Insulting or using offensive language against individuals, communities, religion, or the nation is illegal.

Tags:
RBI CRR cut SBI report credit growth liquidity monetary policy banking sector