CRR Cut by China..India might follow

China has cut CRR ( Cash Reserve Ratio) because of the falling Manufacturing Purchasing Manager's Index to 32 month low.

India's RBI is increasing the interest continously but the market doesn't want or another rate hike so RBI following China's foot step might cut the Cash Reserve Ratio.

This bores well for banks because it will release money into the system which otherwise doesn't give any interest.

Interbank Rate

What is Interbank Rate?
It is the interest charged by one bank to other bank for short term loans. This interest rate is regularly fluctuating based on money availability, demand, current rates, time horizon and other terms.

There are some standard bank rates used as a reference by different banks and other interested parties in the economy.
Eg: LIBOR (London Interbank Offered Rate) , MIBOR (Mumbai interbank offer rate). Indian Banking Association(IBA) has pushed for it to the RBI.
Benchmark rate they say helps eliminate the fuzziness in loan and deposit pricing and usher in more transparency in the entire system.[source : Rupee time]


Why do bank need to borrow when they are themselves lenders?
Banks need to borrow to manage liquidity and meeting various statutory requirements placed by the RBI or other federal agencies.
Banks are required to keep some amount of liquid capital or asset to fulfill the withdrawal requirements of the customers. This is a fixed percentage of the total assets. If their is a temporary shortfall banks need to borrow to meet the liquidity requirements.
The lender bank earns interest on the excess assets lent.

Banking Space

Banking stocks are coming under hammer for quite a few days.

Sbi and ICICI are touching new lows everyday. With inflation soaring high and oil price on the anvil its a difficult phase for them.

With liquidity crunch, high interest rate , low credit offtake coupled with slowing economy banks are facing moderation in their earnings.

We have to wait and watch , and enter the stock at right time.