With peak festival season around the corner, bankers are pressing for a cut in CRR and policy rates by the Reserve Bank in its monetary policy later this week to boost demand for manufactured goods and revive sagging economic growth.
"We have made our recommendations for releasing the liquidity, making it more accessible, making it less expensive," State Bank of India (SBI) Chairman Pratip Chaudhuri said.
"We have recommended a cut CRR, repo rate and asked RBI not to restrict the MSF to a particular number. Whatever excess SLR banks hold that should be available for MSF (marginal standing facility)," he said.
RBI is scheduled announce the mid-quarter review of the monetary policy for 2013-14 on September 20. In July, RBI raised bank rate and MSF to banks by 2 per cent to 10.25 per cent making loans costlier, in its bid to contain slide of the rupee against dollar.
Introduced during the 2011-12 period, MSF allows banks to borrow money from the central bank at a higher rate when there is significant liquidity crunch.
"We think this tightening of the liquidity and making it more expensive of course may have been helpful in containing or arresting decline of rupee but it has its collateral cost in terms of growth of economy," Chaudhuri said.
Indian Overseas Bank Chairman and Managing Director M Narendra said: "It is our wish that RBI reversed the liquidity tightening measure taken recently so that loan becomes cheaper."
With peak festival season around the corner, demand for loans is expected to go up and banks would be able to disburse loans at the lower rate if RBI cuts rate, Narendra said. In its last policy review on July 29, RBI chose to keep all key interest rates unchanged on account of weak rupee.
Accordingly, the repo rate or the rate at which RBI lends to the system, has been retained at 7.25 per cent and the cash reserve ratio (CRR), the amount of deposits banks park with RBI, has been kept unchanged at 4 per cent.
Expressing the hope that liquidity would be eased, Bank of Baroda Executive Director P Srinivas said loan demand is expected to rise as monsoon has been good across the country.
Yesterday, PMEAC Chairman C Rangarajan had said inflation and forex market conditions are expected to weigh on the Reserve Bank decision when it reviews monetary policy.
"All that I can say is that the RBI, I believe, will take into account the behaviour of inflation as well as what is happening in the foreign exchange market and take a decision," he had said. Inflation, based on the Wholesale Price Index, for August rose to 6.10 per cent from 5.79 per cent in July, as per the official data released today.
It was 8.01 per cent in August last year. The rupee has meanwhile appreciated to 62.75 level after having hit the life-time low of 68.85 against the US dollar towards August-end.