RBI Begins 100 bps CRR Cut Series, Releasing ₹60,000–70,000 Crore in Liquidity

The Reserve Bank of India (RBI) has initiated its planned 100 basis points cut in the Cash Reserve Ratio (CRR)—implementing the first 25 bps reduction on Saturday, releasing ₹60,000–70,000 crore into the banking system. The full 100 bps cut will be rolled out in four phases, ultimately freeing up ~₹2.5 lakh crore of primary liquidity by December 2025. The timing is strategic—coinciding with the peak demand season (Dec–Mar)—helping ease seasonal liquidity stress and allowing the RBI to manage surplus liquidity without disrupting money markets. Despite a current liquidity surplus of ₹2.87 lakh crore, the RBI has been absorbing excess funds via variable rate reverse repo auctions, having mopped up ₹20.37 lakh crore since June 27. Impact on Banking Operations and Interest Margins The CRR cut allows banks to deploy more funds in lending and investments, enhancing credit availability. With the RBI projecting a 7-basis point improvement in net interest margins (NIMs), banks could see modest gains in profitability as they earn higher yields on loans and securities than the zero-return CRR. However, the impact on deposit rates is expected to be limited. Banks have already reduced term deposit rates—from 5.75% in June to 5.61% in July—in anticipation of lower funding costs. With liquidity already factored into pricing, further rate cuts may be muted. Treasury heads note that banks are still evaluating where to deploy the additional liquidity—likely across government securities, corporate bonds, or lending, depending on yield and liquidity conditions.