Reserve Bank of India cut the CRR by 75 basis points to 4.75% of the Net Demand & Time Liabilities

The Reserve Bank of India on 9 March 2012 cut the cash reserve ratio (CRR) by 75 basis points. The CRR was cut to 4.75 per cent of their net demand and time liabilities (NDTL) effective the fortnight beginning 10 March 2012.

The RBI action will inject around Rs 48,000 crore of primary liquidity into the banking system.

The central bank agressively cut the CRR, the amount of cash that banks need to park with the RBI (or CRR) from 5.50 per cent to 4.75 per cent of deposits to ease the liquidity crunch being faced by banks.

The central bank had reduced the CRR from 6 per cent to 5.50 per cent of deposits in its third quarter review of monetary policy in January 2012. The reduction had then injectedg primary liquidity of Rs 315 billion into the banking system.

The liquidity deficit is expected to further increase significantly in mid-March 2012 due to advance tax outflows as well as the usual frontloading of cash balances by banks with the RBI.

The Reserve Bank with the open market operations (OMOs) injected primary liquidity of over  Rs 1245 billion in the 2011-12 financial year, of which Rs 528 billion was injected after the TQR.

the liquidity deficit continued to remain large despite the RBI’s measures as a result of both structural and frictional factors. The deficit got reflected in the net average borrowing under the Reserve Bank's liquidity adjustment facility (LAF) which rose from an average of Rs 1292 billion in January 2012 to Rs 1405 billion in February 2012. Net injection of liquidity through LAF rose to a peak of Rs 1917 billion on 1 March 2012. However the figures were found to dip to Rs 1273 billion on 7 March 2012.