The Reserve Bank of India’s move to tighten daily CRR maintenance could withdraw Rs 400-800 billion of liquidity from the banking system and add 1-2 basis points to banks’ cost of funds, Jefferies said.

Jefferies estimates banks could increase balances with RBI by 5–10% following the change in daily CRR maintenance

Higher cash balances could withdraw ₹400–800 billion of liquidity from the system

Impact on banks’ net interest margins likely to remain limited, with funding costs rising 1–2 bps

The Reserve Bank of India’s decision to tighten daily cash reserve ratio (CRR) maintenance could withdraw ₹400–800 billion of liquidity from the banking system, while adding 1–2 basis points to banks’ cost of funds, according to Jefferies . The global investment bank expects the move to have a small impact on banks’ net interest margins (NIMs), but said the higher funding costs could eventually flow through to NBFCs and corporates. The RBI has raised the daily CRR maintenance requirement to 99 per cent from 90 per cent, requiring banks to maintain a much larger proportion of their prescribed CRR on a daily basis. The statutory CRR remains at 3 per cent of net demand and time liabilities (NDTL). Advt

5 per cent and shifted its stance from neutral to “calibrated tightening”. The policy shift comes as the central bank is moving away from the easing cycle and placing greater emphasis on inflation and financial conditions. The RBI has also indicated that near-term rate cuts are off the table. Jefferies estimates that banks would carry around Rs 8 trillion in CRR balances if they were to maintain 100 per cent of the requirement.

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