The Reserve Bank of India has reduced the cash reserve ratio (CRR) by 100 bps. CRR is the proportion of total sum , a bank reserves with the apex bank. The current move of the reserve bank would provide Rs 40,000 crore in the Indian monetary system. The move of the apex bank would help the cash-starved financial system of the country. The bank has cut the CRR by 2.5 percent so far.

The finance ministry and reserve bank are taking many steps to solve the liquidity problem. RBI has already allowed the banks to generate additional amount by reducing the statutory liquidity ratio (SLR) and Net Demand and Time Liabilities (NDTL). The bank has reduced statutory liquidity ratio (SLR) to 24 percent of NDTL in its recent decision. This step would help mutual funds to generate sufficient cash.

Reserve bank had also raised the interest rates ceiling on deposits by 50 basis points. The step is aimed to attract foreign direct investment mainly from non Indian residents.

The Chairman & Managing Director of IDBI Bank, Yogesh Agarwal stressed the need to completely solve the rupee liquidity problem. Senior vice-president (forex & treasury) at Axis Bank, Partho Mukherjee forecasted that the reserve bank can further review its monetary policy in its scheduled meeting on October 24.