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RBI announces measures addressing liabilities constraints for banks

ICICIdirect Research 06 Dec 2024 DISCLAIMER

RBI, in its monetary policy, has announced a slew of measures which is seen to ease challenge on deposit accretion faced by banks since couple of quarters. 

In line with anticipation, RBI has announced 50 bps cut in CRR (Cash Reserve Ratio) from 4.5% to 4% to be undertaken in two equal parts (25 bps each) effective from fortnight ended 14 December 2024 and 28 December 2024. This will release primary liquidity of ~₹1.16 lakh crore in the banking system. 

Banks have been facing challenge of deposit accretion at competitive rates since last couple of quarters. Cut in CRR will provide the much-needed liquidity thus safeguarding margins in the current competitive scenario for deposit mobilization. 

In addition, RBI has relaxed ceiling on interest rates offered on FCNR(B) deposit (Foreign Currency Non-Resident Bank) by banks which will provide an opportunity for liabilities accretion which remains a challenge for the banking industry. According to the statement, RBI has increased ceiling on FCNR(B) deposit by 150 bps across tenure (Overnight Alternative Reference Rate plus spread of 400 bps for deposit of 1-3 years and spread of 500 bps for deposit with tenure of 3-5 years)

Going ahead, yields on loans are expected to remain stable while deposit rates seem to be peaked out. Given lenders undertaking gradual decline in CD ratio, margins could either remain stable or increase by 3-5 bps (from Q4FY25 onwards) owing to additional liquidity infused through reduction in CRR.

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