In a move that would release another Rs 40,000 crore into the Indian banking system, Reserve Bank of India has cut cash reserve ratio (a portion of cash banks should deposit with the central bank) by 1%. This takes the total CRR cut by RBI in the last fortnight to 2.5%, releasing about Rs 100,000 crore into the system.
Last week the RBI reduced the CRR by 150 basis points or 1.5% effective October 11. Now CRR stays at 6.5 per cent.
RBI has also raised the interest rates ceiling on non-resident Indian (NRI) deposits. This move is intended to attract foreign currency funds to the country. Currently, the interest rate ceiling on FCNR (B) deposits of all maturities has been fixed at Libor or Euribor or Swap rates for the corresponding maturities minus 25 basis points for the respective foreign currencies.
The present interest rate ceiling on NR (E) RA for one to three years maturity should not exceed the Libor or Euribor or Swap rates plus 50 basis points for the U.S. dollar of corresponding maturity.
Further, banks will be allowed to borrow funds from their overseas branches and correspondent banks up to a limit of 50 per cent of their unimpaired Tier I capital as at the close of the previous quarter or $10 million, whichever is higher, as against the existing limit of 25 per cent.
However, the RBI stated that these measures will be reviewed on a continuous basis in the light of the evolving liquidity conditions.
See RBI's full press release.