CRR cut would improve credit flow and improve economic growth: FinMin

The finance ministry is seeking a cash reserve ratio (CRR) cut in the upcoming mid-quarter review of monetary policy, scheduled on June 18. Ministry is of view that a CRR cut would improve credit flow and prompt economic growth. On the sidelines, Department of Financial Services Secretary D K Mittal said, ‘CRR is an issue addressed by the regulator (RBI), but as owner of banks when we have to meet Basel III requirement, we will welcome CRR cut.’

In order to infuse liquidity in the market, in March, the Reserve Bank of India (RBI) had slashed CRR by 0.75% to 4.75%. It earlier reduced CRR by 0.50% in January, leaving banks with an additional Rs 80,000 crore for lending. The RBI in its policy meet is widely expected to cut rates to boost the sinking economic growth, which for the fourth quarter of FY12 came in at 9-year low of 5.3%.

Finance Minister Pranab Mukherjee, while assessing the performance of state-run banks and financial institutions had said that the easing of lending rates, after the apex bank reduced the repo rate in its April monetary policy review will enhance liquidity and the economic growth.

Meanwhile, many banks, together with State Bank of India (SBI) have also pitched for CRR cut by 100 basis points, in order to improve the profitability of banks. CRR is the portion of deposits that banks are required to keep with the central bank.