Impact Of CRR Cut As RBI’s Strategy

RBI’s announcement read like this:
All the money in excess of the required amount deposited by banks in the CRR account will gain no interest.

With this golden move, RBI reduced its interest burden (something good for the fiscal deficiet) without tinkering with the interest rates. Also it started a new wave of reforms  which forces banks to look for deposits other than the treasury bonds to reinvest it. It will help forge an alliance between public sector banks which have excess captial and private banks which have more people seeking loans than depositing.

Private banks with its stream lined processes, loan mela, and aggressive advertizements have managed to attract most of the loan taking people. Also the hassles of inspector raj and bribery is less which makes the loan taking process seamless. Same person on the other hand will stand in the queue of a public sector bank to deposit money with them. People believe that by doing so their life savings will be guarenteed by the govt. This consumer tendency has created this inbalance of capital distribution among banks. Now this golden move with force banks to sublend money to other aggresivebanks, or better still be more aggresive and start lending.

 

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