With the Reserve Bank of India (RBI) governor clearly stating, in his monetary policy statement, that the 50 basis points (half a percentage point) cut in the mandatory cash reserve ratio (CRR) of banks will inject around Rs 32,000 crore of primary liquidity in the financial system, the focus has shifted on individual banks who would have the highest amount of freed funds to lend.

With CRR being cut from 6.0 per cent to 5.5 per cent, a bank can additionally lend 0.5 per cent of its total deposits which otherwise it would have had to keep it locked in as zero-interest cash balance with RBI.

A FC Research Bureau analysis of 37 listed banks’ total deposits as per their most recent quarterly disclosures to stock exchanges revealed half a percentage point of their collective total deposits will amount to Rs 26,438 crore.

Standard Chartered Bank’s research analyst, Mahrukh Adajania, stated in a note on Tuesday, the direct impact of the CRR cut “will be that banks’ earnings will increase by 1-3 per cent for FY13E as the CRR funds, which currently earn zero interest, will be redeployed in bonds or loans yielding 8-11 per cent.”

Of the Rs 26,438 crore available to 37 listed banks, Rs 17,500 crore will be available to the 12 large banks which form a part of the Bank Nifty index, the largest being with the State Bank of India (see table). SBI will have the option to start earning interest on Rs 4,866 crore worth of deposits (0.5 per cent of its total deposits of Rs 9,73,171 crore as of the end of September 2011 quarter) if it lends it all to borrowers.

Assuming that the 12 banks lend their respective freed sums at a 10 per cent interest per annum, and based on the aggregate of their total income in four quarters upto September 2011, their respective total income will rise by 0.32-0.57 per cent. The 10 per cent rate on additional lending will make Bank of Baroda, Bank of India, Canara Bank and Oriental Bank of Commerce notch up their total income the highest by 0.57 per cent, 0.53 per cent, 0.52 per cent and 0.51 per cent respectively. Kotak Mahindra Bank, ICICI Bank and IDBI Bank with a rise of 0.32 per cent, 0.34 per cent and 0.38 per cent respectively in their total income. SBI stands to gain 0.45 per cent in total income.