UPDATE 1-China c.bank targets farm sector in reserve requirement cut for some banks


* China to lower RRR by 50 bps for some banks

* Targets banks in farming sector and SMEs

* PBOC says monetary policy has not changed, liquidity ample

(Adds details, comments)

BEIJING, June 9 (Reuters) - China's central bank said it will cut the level of deposits for banks with sizeable lending to the farming sector and small- and medium-sized firms, a move the government had flagged in May.

The People's Bank of China said the targetted 50-basis-point reduction in the reserve requirement ratio (RRR), effective from June 16, would also apply to financial firms that disburse consumer or auto loans.

The announcement puts into action a promise by the cabinet to lower the RRR for more banks on May 30, and underscores the government's intent to selectively relax policy in areas of the real economy it deems most in need of assistance.

The nuanced approach is to avoid increasing credit supply for all businesses, which critics fear would stoke speculation or wasteful investment in the world's second-biggest economy.

"This targeted reduction is to encourage commercial banks to allocate more funds to areas that need support in the real economy, ensuring a smoother transmission of monetary policy to the real economy," the central bank said in the statement on its website.

This is the second time since April that China's central bank has acted on the instruction of senior Chinese leaders to lower the RRR for some banks.

The last time it cut the RRR was on April 25, a reduction of between 50-200 basis points that applied only to rural banks.

In a sign that authorities do not want any one bank to enjoy too big a cut in its RRR, the central bank said that banks who already had their reserve requirements relaxed on April 25 would not be eligible for Monday's reduction.

"It does not mean an overall loosening of monetary policy as big banks are not eligible for the reduction," said Zhang Yongjun, senior economist at China Center for International Economic Exchanges (CCIEE), a think tank in Beijing.


The central bank said the "basic" direction of China's monetary policy has not changed, and that liquidity supply in the country's banking system is ample and will be kept at an appropriate level.

The RRR cut will apply to two-thirds of China's city commercial banks, and 80-90 percent of rural banks whose business are not restricted to counties, the central bank said.

It specified that banks are eligible for a lower RRR if their new loans to the farm sector last year exceeded 50 percent of total new lending, and if their outstanding agricultural loans exceed 30 percent of their total outstanding loans.

Alternatively, banks also qualify for less stringent reserve requirements if their new loans to small firms last year exceeded 50 percent of total new loans, and if such outstanding loans account for more than 30 percent of total outstanding loans.

Banks' reserve requirements are neither uniform or transparent in China. Smaller banks tend to have lower RRRs than major banks, which had an RRR of 20 percent in 2012.

(Reporting by Shao Xiaoyi and Koh Gui Qing; Editing by Jacqueline Wong)