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Rediff.com  » Business » CRR issue: After the RBI snub, comes the SBI rebuttal

CRR issue: After the RBI snub, comes the SBI rebuttal

August 29, 2012 10:46 IST

SBIState Bank of India Chairman Pratip Chaudhuri on Tuesday took a gentle dig at the Reserve Bank of India Deputy Governor K C Chakrabarty, who had advised him on Monday to 'find out some other place' if he didn't agree with the current regulatory environment insofar as cash reserve ratio was concerned.

Speaking on the sidelines of an investor conference on Tuesday, Chaudhuri said he hadn't read the complete media reports, but what he remembered was that Chakrabarty had the same views when he was a banker.

"What I want to say is that it's just a view.

"When he (Chakrabarty) was a bank chairman, he was also of the same view (reducing the CRR)," Chaudhuri said.

He made the remarks with a big smile, but the message was loud and clear.

Before joining the central bank, Chakrabarty was the chairman and managing director of Punjab National Bank and before that, of Indian Bank.

However, while speaking to NewsWire 18, Chaudhuri clarified his intention was not a complete abolition of cash reserve ratio overnight, but to ignite a public debate on the merits of CRR.

"My comments are in sync with the views of most of the bankers today," he said.

Chaudhuri had earlier suggested that CRR should be phased out in a time bound manner or at least RBI should consider a paying an interest on it equivalent to the savings bank account rate if not the repo or the reverse repo rate.

CRR is the proportion of deposits that banks need to park with the regulator.

While RBI used to pay interest on CRR funds, but that system was withdrawn a few years back.

As a result, banks do not earn anything for keeping CRR with RBI but the negative carry for CRR and also SLR (statutory liquidity ratio) is considered while calculating the benchmark lending rate -- the Base rate.

At present, CRR is 4.75 per cent.

The central bank had reduced CRR by 125 bps to improve liquidity situation during January-February. CRR is not only used a liquidity tool but also indicates the monetary policy stance of the central bank.

Capital infusion

Regarding fund raising, Chaudhuri said SBI was in talks with the government for capital infusion and he expected the government to infuse about Rs 4,000 crore (Rs 40 billion) this financial year in the bank.

The government is committed to infuse capital in the PSBs and retain its stake, financial services secretary D K Mittal had told reporters on a sidelines of an event last year in Mumbai.

However the Rs 8,000-crore (Rs 80-billion) capital infusion for SBI came only at the end of the last financial year after from the government after dilly-dallying on the issue for the whole year.

Capital adequacy ratio for the SBI at the end of the first quarter stood at 13.17 per cent.

On associate banks' merger, Chaudhuri said that it was currently not on the priority list of the bank and he could not say if any associate bank would be merged this financial year.

The SBI board has already cleared the merger of one associate bank this year.

BS Reporter in Mumbai
Source: