Finally there is some good news for savers as interest rate on fixed deposit (FD) may go up starting from April 2021 as the Reserve Bank of India plans to restore the Cash Reserve Ratio (CRR) of banks to the earlier level of 4%.
Worth mentioning here is that the RBI had reduced CRR by 100 basis points last year to 3% due to the disruption caused by the Covid pandemic. Now it wants to restore the CRR in a non-disruptive manner. First, CRR will be changed to 3.5% from March 27, 2021, and then to 4% from May 22, 2021, RBI Governor Shaktikanta Das said on Friday.
However, this also brings bad news for borrowers as loan rate will also firm up. But it is difficult at this state to say by what extent deposit and loan rates will go up. Although the repo rate was unchanged in today’s credit policy, increasing CRR of banks will leave lenders with less liquidity. Experts say banks’ cost of fund are likely to increase post CRR revision and they are likely to pass on that cost increase to borrowers.
It may be noted that CRR was maintained at 4% level from February 2013 to January 2020 and now wants to restore CRR bank to its long-term level of 4%. However, the central bank has indicated that it may inject liquidity into the system if required post restoration of CRR. “CRR normalisation opens up space for variety of market operations of the RBI to inject additional liquidity” RBI Governor Shaktikanta Das said today while announcing the policy outcome.