CRR cut likely to boost NIMs by 3-12 bps: Nomura

The Reserve Bank of India (RBI) has announced a significant move in its monetary policy, cutting the benchmark rate by 50 basis points, a figure that surpasses the anticipated 25 basis points. This decision is part of a broader strategy to enhance system liquidity and stimulate credit growth. Simultaneously, the RBI has altered its policy stance from accommodative to neutral, suggesting that the market should not expect further substantial rate cuts in the near future. The move aims to balance the economic growth while managing inflationary pressures.

In addition to the rate cut, the RBI has lowered the Cash Reserve Ratio (CRR) by 100 basis points to 3%, which will be implemented in four tranches starting from the fortnight beginning 6 September 2025. This action is expected to infuse approximately Rs 2.5 trillion of liquidity into the financial system, said Japanese brokerage Nomura. The reduction in CRR is anticipated to provide a cushion for net interest margins (NIMs), profitability, and earnings per share (EPS) for banks, potentially boosting NIMs by 3-12 basis points and EPS by 2-8%. These measures come as system loan growth has moderated to 9.8% as of May 2025. However, with the recent policy actions, the RBI expects system loan growth to improve to 12% year-on-year by FY26.

The RBI's recent actions include the injection of Rs 9.5 trillion of durable liquidity since January 2025, relaxation of Liquidity Coverage Ratio (LCR) norms, and reduction of risk weights on loans to microfinance institutions (MFIs) and non-banking financial companies (NBFCs). These measures, coupled with an overall repo rate cut of 100 basis points since February 2025 and a cumulative CRR cut of 150 basis points since December 2024, aim to revive credit growth.

The potential positive impact on return on assets (RoA) is more pronounced for private banks, which have greater flexibility in adjusting CRR compared to public sector banks, said the  brokerage. Additionally, the RBI's strategic focus on liquidity infusion is expected to bolster the banking sector's resilience, enabling it to support economic recovery more effectively, it added.