Market welcomes RBI's CRR cut but wants more

To stem the credit crunch crisis in the domestic market and inject liquidity into the market, RBI announced, Friday, that it would be cutting the CRR by 1 percent. Earlier, on Monday, the central bank had already announced a cut in the CRR by 50 basis points to 8.5 percent. The cuts will take effect from October 11.

According to apex industry chambers, the rate cut will ease the liquidity crunch but the central bank needs to do more to rescue the stricken market. "This would go a long way in injecting additional liquidity into the system, which is the need of the hour," said Chandrajit Banerjee, director general, Confederation of Indian Industry (CII).

The Federation of Indian Chamber of Commerce and Industry (FICCI) said the "confidence boosting" move will "inject the much desired liquidity in the system" and urged that other benchmark rates like repo rates should also be reduced.

Echoing the same view, Sajjan Jindal, president of the Associated Chambers of Commerce and Industry of India (ASSOCHAM), said, "It was high time that the central bank should also consider reducing the benchmark lending rate to ensure adequate liquidity in the system."

If this is not done infrastructure projects in the country would be severely affected, Jindal said.

India's banking sector echoed similar views.

"The reduction in the CRR is a welcome step given the current rupee liquidity conditions," said Chanda Kochhar, joint managing director and CFO, ICICI Bank. "This should have a cooling effect on the market and ease liquidity."

The RBI's decision will not only ease the credit crunch but will also soften the interest rates by unlocking Rs.60,000 crore of bank funds, said Allen Pereira, chairman and managing director, Bank of Maharashtra.

T.S. Narayanasami, chairman and managing director, Bank of India, feels that RBI needs to do more. "It (the CRR cut) is not enough. More and more doses need to come," he said.