Lenders Seek CRR Norm Easing, Fixed-Rate Loans from RBI Amid Tight Liquidity

Indian banks reportedly approached the Reserve Bank of India (RBI) seeking better flexibility in how much cash they must hold on a daily basis to meet reserve requirements, people familiar with the matter told Bloomberg. The lenders are hoping for a relaxation in the daily maintenance norms under the cash reserve ratio (CRR), which they say could ease short-term liquidity pressures.

The CRR currently stands at 4% of deposits, which needs to be reported by banks to the RBI on a fortnightly basis. Banks set aside 90% of this requirement daily at present, the report said.

According to the news agency, some lenders that met senior officials of the RBI on Wednesday have urged the central bank to lower this to 80%-85%.

This marks the second meeting between bankers and the central bank as the authority looking at its liquidity management in the age of digital banking. As per a recent RBI panel report banks must be prepared with enough liquidity to handle sudden withdrawals with 24x7 payment systems, especially after overnight money markets close.

Banks have also urged the regulator to continue its use of daily variable rate repo operations to inject liquidity into the system, the report said. While the RBI traditionally relies on the 14-day repo as its primary liquidity tool, it has recently opted not to conduct these operations, prompting lenders to seek more immediate support.

In addition, banks have proposed the introduction of fixed-rate loans linked to a portion of their deposits to help them better manage short-term liquidity fluctuations. This approach, they argue, would offer more predictability and control over funding costs, the news agency noted.

However, there was less consensus on whether the weighted average call rate (WACR) should remain the operational target of monetary policy. Some bankers favoured retaining the WACR, given its role as a key interbank benchmark, while others advocated shifting to a secured rate, citing the increasing prevalence of collateralised transactions in the financial system, the report added.