RBI has reduced the CRR rate by a steep 75bps to 4.75%

While the CRR cut was much along our expected line the quantum i.e. a 75bps cut (against our expectations of 50bps) has come in as a big +ve surprise.Through 50bps CRR cut in its third quarter monetary policy review + on-going OMO operations since Nov, 2011, RBI had already infused liquidity to the tune of Rs1.5tn (2.4% of NDTL) into the system. The recent CRR cut would further infuse liquidity by Rs480b.Through 50bps CRR cut in its third quarter monetary policy review + on-going OMO operations since Nov, 2011, RBI had already infused liquidity to the tune of Rs1.5tn (2.4% of NDTL) into the system. The recent CRR cut would further infuse liquidity by Rs480b. A prolonged period of substantially higher WPI inflation had restricted the central bank from easing its monetary stance. This in-turn had affected the non-food credit growth which remained fragile at 15.5% as at Feb 10th, 2012.We do not expect banks to immediately reduce their lending rates as they would like to wait for any reduction in policy rates. Resultantly, this will have positive impact on bank NIMs to the tune of ~7-10bps.
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