CRR cut by RBI expected to provide support to net interest margins of banks

The Reserve Bank of India's (RBI) decision to cut the Cash Reserve Ratio (CRR) is expected to provide marginal support to the Net Interest Margins (NIMs) of banks, according to a report by Axis Securities.

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The report highlighted that this move would help improve liquidity conditions while also supporting the broader economic growth agenda.

From a banking perspective, the report mentioned that the CRR cut would slightly benefit NIMs. However, the potential for a rate cut in February 2025 could create margin pressures, particularly for banks with a higher share of floating-rate loans. This is because the cost of funds (CoF) for banks would decrease gradually, leading to a lag in rate adjustments.