The SBI chairman is reported to have said that CRR does not help anybody and is unfairly put on the banks, and has asked why it is not applied to insurance companies and mutual funds, which are also mobilising deposits from the public. The US has a required reserve ratio that is as high as 10% on transaction deposits above a certain limit on a graded scale against 4.75% in India. For fighting inflation, the central bank of China raised the reserve requirement several times during 2007-11. At one point, it was as high as 21.5%. Countries like UK are able to use open market operations (OMO) successfully to carry out monetary policy because of their developed financial markets. In India, due to constraints arising from lack of autonomy, the RBI has to use the OMO to groom the market for the flotation of government securities through buybacks, thus monetising fiscal deficit retroactively. Until this situation improves, it has to rely on CRR for having some control on money supply.
- A SESHAN (ET)
The SBI chairman has made a valid suggestion, and his view is shared by the entire banking industry. It was expected of the regulator to study this suggestion and not reply rudely. The RBI deputy governor has not only snubbed the SBI chairman, he has given a clear message to other heads of banks not to offer good suggestions to the RBI.
- P H SADEKAR (ET)
- A SESHAN (ET)
The Chairman of SBI has raised a question for debate as to why cash reserve ratio (CRR) cannot be phased out as it does not carry interest. Instead of having a healthy discussion on the statement, the remark of the Deputy Governor of RBI “either comply or do business elsewhere” is unfortunate. The RBI would do better to revisit its policy on CRR.
- Mariappan (HBL)
Outdated instrument
This is with reference to “Chakrabarty frowns at SBI chief’s views on CRR phase-out” (Business Line, August 28). It is unfortunate that a man of Chakrabarty’s stature made the remark. Many experts have opined that CRR has outlived its purpose. Most of the central banks have stopped using this instrument.Valuable capital is being immobilised by the RBI using an outdated instrument.
The public has a right to know the logic behind Chakrabarty’s statement.
- Vishnumurthy Adiga (HBL)
Rude Reply
The SBI chairman has made a valid suggestion, and his view is shared by the entire banking industry. It was expected of the regulator to study this suggestion and not reply rudely. The RBI deputy governor has not only snubbed the SBI chairman, he has given a clear message to other heads of banks not to offer good suggestions to the RBI.
- P H SADEKAR (ET)
This refers to “Phase out Cash Reserve Ratio” (Business Line, August 24). The SBI Chairman deserves to be complimented for questioning a notion that has outlived its utility. This issue has been analysed well in the article “Interest on CRR, a big mistake” (Business Line, August 24). Let us hope for more reforms that suit the changed economy.
- K. Gopalan (HBL) 
2 comments:
RBI have been saying that they wish to reduce, in the medium term, CRR to the statutory minimum of 3%. They have been saying this for such a long time that the medium term is long over!! If they are not able to reduce it to the statutory minimum in the Indian environment for the reasons adduced by Shri A. Seshan, they should at least pay interest for the excess over the statutory minimum.The argument of Shri Tarapore that payment of interest on CRR is one of the cardinal sins of central banking is difficult to accept when the RBI has not been able to bring CRR down to the statutory minimum.
A. Chandramouliswaran.
The current CRR debate is a deliberately planned effort to divert real issues and make RBI do what the new FM ‘almost’ asked it to do. The present episode started off with Chidambaram’s suggestion that let interest be paid on CRR, so that banks can reduce lending rates. SBI Chairman because of his innocence or deliberately took it as an opportunity to improve his bank’s balance sheet-Fourth Quarter is fast approaching- and RBI Deputy Governor Dr Chakrabarty is always available to embarrass Governor Dr Subbarao. Hopefully, no decision is likely to be taken in a haste as RBI as an institution is mature and has proved in tougher times.M G Warrier, Mumbai
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