Mumbai, June 12 -- Companies anticipating cheaper loans following the recent cut in the repo rate and cash reserve ratio (CRR) may have to wait and see how the Reserve Bank of India's forward book plays out, with experts pointing out that the upcoming maturity of contracts may drain liquidity. This may restrain banks from aggressively cutting deposit rates and passing on the benefit of lower lending costs to companies. While loans to individuals and small businesses may turn cheaper immediately, advances to companies may take longer since they are pegged to the marginal cost of funds-based lending rate, an internal benchmark that moves in tandem with deposit rates. According to the latest data, RBI has a short forward book of $37.8 billion maturing over the next three months to one year, which could drain out liquidity. The data on forwards is as of April and released by the RBI on 30 May. Economists at HDFC Bank calculated that if the RBI wants to reduce its forward book-up to one year-by about 50%, it will result in a rupee liquidity outflow of Rs.2.3 trillion. If it decides to let 70% of its forward book mature, the amount sucked out from the system will be Rs.3 trillion. On Friday, the RBI said its decision to cut CRR-the portion of deposits that banks must park with the central bank at no interest-by 100 basis points (bps) in tranches will add Rs.2.5 trillion to the banking system by December 2025. The central bank also slashed the benchmark repo rate by 50 bps to 5.5%. The RBI takes forward positions to manage volatility in the rupee-dollar exchange rate. These positions involve buying dollars in a forward contract, injecting liquidity into the banking system. Now, as the contracts mature, the reverse will happen-the RBI will sell dollars and get rupees, reducing liquidity in the banking system. Although the system liquidity surplus is about Rs.2.4 trillion, experts said uncertainty over the RBI's forward book and the impact on liquidity could hit the transmission of lower interest rates. "Everybody was hoping that with the 50 bps rate cut, CRR cut and so much liquidity infusion, banks would start lowering lending rates," said Soumyajit Niyogi, director, core analytical group, India Ratings & Research. According to Niyogi, the biggest uncertainty that banks face is the net short position of the RBI of about $53 billion despite the central bank's dividend transfer to the government and the consequent increase in spending. "In the last two years, banks have been facing high deposit challenges and this year, while liquidity is available, lenders are uncertain how the swap maturity will suck out base money," said Niyogi. Banks struggled to convince people to park their idle funds with them last year, the worst deposit crunch in almost two decades,Mint reported in 2024. With deposits now growing at 10%, lenders have more breathing room. However, the rate cut has pushed banks to lower deposit rates as a majority of their loans would get immediately repriced lower....