Banks, on Monday, suggested to Reserve Bank of India (RBI) that there should be a cut in the Cash Reserve Ratio (CRR) and in the policy rate in the forthcoming review of Monetary Policy on July 31. Such a step would give more elbow room for banks to lend money to borrowers.

In a meeting with the RBI, ahead of its first quarter review, bankers said that “liquidity easing measures” were needed to lend more funds to the industry. Bankers met the RBI Deputy Governor, Subir Gokarn, here.

The cost of deposits needed to come down for cutting the lending rate, said Alok Misra, Chairman, Indian Banks’ Association (IBA) and Chairman and Managing Director of Bank of India.

The RBI had frontloaded the policy rate reduction last April with a cut of 50 basis points, as part of its Monetary Policy announcement for 2012-13. However, in its first mid-quarter review of Monetary Policy, on June 18, the RBI kept the indicative short-term policy rate (Repo rate) and the CRR unchanged, ignoring widespread demand and expectations for a rate cut to revive growth.

The RBI kept the Repo rate unchanged at 8 per cent, and the CRR 4.75 per cent. Repo rate is the rate at which banks borrow money from the central bank. CRR is the portion of their deposits that the banks required to hold in the form of cash.

Slow deposit growth

At the meeting with the bankers, the RBI expressed its concern over slow deposit growth. RBI had also raised its concern over the monetary policy transmission by banks to customers. Even though the RBI is providing liquidity, the lending rates are not coming down.

Deposits are growing much slower than the credit growth. Deposits grew at 14.3 per cent in the year to June 15, compared with 18.3 per cent in the same period a year earlier.

However, the Reserve Bank of India had projected deposit growth at 16 per cent for banks in 2012-13.

“The widening wedge between deposit growth and credit growth is intensifying liquidity pressures,” RBI said in the last mid-quarter review.

However, RBI said that the open market operations (OMOs) had substantially eased liquidity conditions.

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