The Reserve Bank of India (RBI) today announced a 1.0% cut in the Cash Reserve Ratio (CRR), a move that is set to create measurable shifts in bank metrics including profitability, liquidity, and lending capacity. This policy change has an immediate impact on the financial dynamics of the Indian banking sector. Here’s a detailed breakdown of how this decision affects major Indian banks based on the most recent data from 4QFY25.
Net Demand and Time Liabilities (NDTL) and RBI Balances
NDTL represents the total demand and time liabilities of banks and is a critical component used in determining the CRR. Among the listed banks:
SBI holds the highest NDTL at ₹59.46 trillion, followed by HDFC with ₹32.63 trillion and ICICI at ₹17.34 trillion.
In terms of cash and balances with the RBI as a percentage of NDTL, IndusInd Bank (IIB) leads with 11.0%, followed by Kotak at 7.6%, and ICICI at 6.9%.
SBI and BOB hold relatively lower balances with the RBI at 3.8% and 3.5%, respectively.
Banks with higher RBI balances as a percentage of NDTL benefit more from a CRR cut, as it releases more capital for loans and investments.Loan-to-Deposit Ratio and Liquidity Coverage Ratio
The loan-to-deposit ratio reflects the bank’s ability to deploy deposits into loans:
HDFC has the highest loan-to-deposit ratio at 96%, indicating a strong lending focus.
Federal Bank leads on liquidity with the highest Liquidity Coverage Ratio (LCR) at 142%, followed by SBI at 133%, indicating a healthy buffer against short-term obligations.
Impact of 1.0% CRR Cut by RBI
With today’s CRR cut of 1.0%, Indian banks are expected to benefit from increased capital availability, directly impacting profitability and key performance indicators. The incremental gains are projected as follows:
Incremental PAT (%): IndusInd Bank sees the highest boost at 2.3%, followed by SBI and BOB at 2.2%, and Federal at 2.1%. HDFC and ICICI see moderate increases of 1.7% and 1.4%, respectively.
Incremental NIM (bps): Most banks report an 8 bps improvement in Net Interest Margin, except Kotak, which sees a 7 bps gain.
Incremental RoA (bps): IndusInd Bank leads again with a 3 bps increase in Return on Assets, while others like HDFC, ICICI, and Federal improve by 2 bps.
Incremental RoE (bps): SBI shows the largest increase in Return on Equity with a 32 bps gain, followed by BOB (28 bps) and IndusInd (26 bps). HDFC and ICICI see 24 bps improvements.
Today’s CRR cut by the RBI is a significant move aimed at boosting liquidity in the banking system. Banks with higher reserves with the RBI, such as IndusInd and Kotak, are positioned to benefit the most. Improvements in PAT, NIM, RoA, and RoE across all banks suggest stronger financial health and lending potential. This decision is likely to energize credit flow and stimulate economic activity in the months ahead.
Disclaimer: This article is based on data as of 4QFY25 and the latest RBI policy update. It is intended for informational purposes only. Investors should do their own analysis or consult with a financial advisor before making any investment decisions.
