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SBI expects 1% reduction in CRR on 17th September

Hinting at reduction of SBI's base rate, Pratip Chaudhuri said, if there is a CRR cut then there is a possibility for it

 
Mumbai: State Bank of India (SBI) chairman Pratip Chaudhuri said he expects the Reserve Bank of India (RBI) to leave the key policy rates unchanged, but sees a 100 basis points reduction in the cash reserve requirements (CRR) on 17th September, which can help banks trim base rates, reports PTI.
 
The monetary authority is expected to take call on the interest rate regime on 17th September at mid-quarter review, and it is expected that Governor D Subbarao will leave the lending rates unchanged in view of sticky inflation situation.
 
"I expect a one percentage point cut in the CRR...which will have an impact (on the interest rate scene)," Chaudhuri told reporters on the sidelines of a banking event.
 
He hinted at reduction in the bank's base rate. "If there is a CRR cut, then there is a possibility of reducing the base rate too," the chairman said.
 
Preferring CRR cut over a repo cut, he said 1 percentage point reduction in CRR releases Rs10,000 crore for SBI and around Rs68,000 crore into the banking system, and if you lend it at 8%, then you get Rs800 crore. That's the amount which can be released to the borrowers.
 
Explaining the rationale further, Chaudhuri said the total incremental income to SBI will be only around Rs100 crore in case of a repo cut. "That is why when RBI raised the rates three times, none of the banks moved the rates. So, I will say though repo rates and base rate move in the same direction, the correlation is very weak."
 
The statement comes in the middle of a row he started last week by calling for abolition of the CRR, saying this would release the much needed funds to the system.
 

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