India's central bank yesterday moved to crank up lending to spur slackening growth in Asia's third-biggest economy by lowering the amount of cash reserves commercial banks must keep on deposit.

The Reserve Bank of India (RBI) cut the cash reserve ratio (CRR) for commercial banks by 75 basis points to 4.75 per cent - reducing the amount of money they must set aside as deposits and, in effect, allowing them to lend more.

"It has been decided to reduce the CRR of scheduled banks by 75 basis points from 5.5pc to 4.75pc," the RBI said in a statement, its second such cut in the 2012 calendar year.

The move, which RBI says is expected to inject $9.6 billion into the banking system, comes less than a week before the central bank's mid-quarter monetary policy review on Thursday.

The bank said it took the step because the shortfall among banks to fund loans was still "above the comfort level". It said it wanted to ensure the "smooth flow of credit to productive sectors of the economy".

The bid to accelerate growth comes after official data late last month showed that India's economy expanded by 6.1pc in the last three months of 2011, the weakest pace in around three years.

The weaker growth came on the back of 13 interest rate increases since March 2010 that have sapped demand and pulled down manufacturing output.

The bank is moving to relax monetary policy with growth slowing sharply and inflation at a two-year low of 6.55 per cent.-Reuters