RBI to cut CRR by 100 bps in four tranches to boost liquidity, effective Sept
Jun 6, 2025
Synopsis
The Reserve Bank of India (RBI) has taken significant steps to boost the economy by reducing both the Cash Reserve Ratio (CRR) and the repo rate. The CRR will be decreased in phases, injecting ₹2.5 lakh crore into the banking system. A surprise repo rate cut, along with a shift to a 'neutral' stance, indicates concerns about economic deceleration.
In a major boost for the banking industry, the Reserve Bank of India (RBI) on Friday announced a phased 100 basis points (bps) cut in the Cash Reserve Ratio (CRR) and a surprise 50-bps reduction in the repo rate, bringing it down to 5.5%. This marks the third consecutive rate cut this year by the central bank’s Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra.
The Nifty Bank index surged 688.50 points, or 1.23%, hitting a fresh record high of 56,515.80 during the session, powered by strong gains in financial stocks after the RBI announcement, as of 11:10 AM.
The CRR, the share of deposits that banks must hold with the RBI, will be reduced from 4% to 3% in four tranches of 25 bps each, beginning September 2025. The move is expected to infuse ₹2.5 lakh crore into the banking system over the coming months, significantly enhancing banks' lending capacity.
"We have decided to reduce the Cash Reserve Ratio by 100 basis points from 4% to 3% of net demand and time liability. This will be done in a staggered manner through the course of the year in four equal tranches of 25 basis points each, coming into effect the fortnight beginning September 6, October 4, November 1, and November 29 of this year. The cut in CRR would release primary liquidity of about 2.5 lakh crore rupees into the banking system by the end of November 2025. It will also reduce the cost of funding for banks, thereby helping and accelerating the monetary policy transmission to the credit market," said RBI governor Sanjay Malhotra while announcing the MPC's decisions.
RBI Governor Malhotra said, "We need to provide liquidity; one of the reasons for cutting CRR is that it will not only improve liquidity but also provide certainty to banks."
"We will maintain the CRR at 3% for now, keeping a steady approach as we closely monitor liquidity conditions. Our future actions will be guided by how the economic situation evolves."
He added that the central bank’s neutral stance means the next policy move will depend on upcoming economic data.
Reflecting on the past, the Governor noted that over the last 12-13 years, the CRR has mostly been at 4%. During the Covid period, it was reduced by 1%. Current experience suggests that a 3% CRR is sufficient and provides a comfortable reserve from a liquidity management perspective.
Malhotra also estimated that the CRR cut will help improve costs and net interest margins (NIMs) by at least 7 basis points.
The surprise 50-bps cut in the repo rate signals the central bank’s concern over a broader economic deceleration. The MPC also shifted its stance from ‘accommodative’ to ‘neutral’, providing flexibility for future policy decisions.
The RBI had previously cut the repo rate by 25 bps each in February and April. With Friday’s announcement, the cumulative repo rate cut this year now stands at 100 bps.
The RBI also retained its quarterly GDP growth projections for FY2025-26 at 6.5% for Q1, 6.7% for Q2, 6.6% for Q3, and 6.3% for Q4, unchanged from its previous estimates.
[The Economic Times]
