RBI cut CRR: 4.25%

The Reserve Bank of India (RBI) cut the Cash Reserve Ratio (CRR) by 25 basis points from 4.5 to 4.25 percent.

Why this step?

§  The reduction in the CRR is expected to infuse liquidity to the tune of around Rs. 17,500 crore into the banking system.

§  By doing this RBI intends to preempt a prospective tightening of liquidity conditions, thereby keeping liquidity comfortable and supportive of growth.

Other steps by RBI:

§  RBI cut the growth projections for GDP growth for 2012-13from 6.5 % to 5.8 %. This was done because of a weak global environment and a sluggish domestic market with low investment.

§  The central bank also raised banks’ provisioning requirement to 2.75 % from the existing 2% on restructured standard loan accounts. This has been done because of the deteriorating asset quality.