RBI Urged to Cut CRR Amid Liquidity Squeeze in Banking Sector

State Bank of India research calls on the Reserve Bank of India to cut the Cash Reserve Ratio to alleviate liquidity stress. The report emphasizes the need for proactive liquidity measures, suggesting that existing frameworks are inadequate and that cash withdrawals from events like Mahakumbh exacerbate the situation.

The Reserve Bank of India (RBI) faces mounting pressure to cut the Cash Reserve Ratio (CRR) as a remedy for the current liquidity shortfall plaguing the banking sector, according to a State Bank of India (SBI) research report.

The report points out that the projected Open Market Operations (OMO) gap, estimated at Rs 1.7 trillion for financial year 2025-26 (FY26), alongside stagnant government securities ownership, underscores the need for sustained liquidity measures.

Moreover, the investigation suggests that RBI should reconsider its management framework, citing that the Weighted Average Call Rate (WACR) isn't fulfilling its policy role effectively. The recent liquidity crunch, compounded by significant cash withdrawals during religious events like Mahakumbh, makes a compelling case for immediate fiscal interventions.

(With inputs from agencies.)