My View on "Cash holding confusion - A.Seshan":
Yes. This is a ridiculous practice to say the least. Previously when government's cash balance exceeded Rs.50,000 crore, the amount was invested in government's own securities. Now perhaps the entire amount over and above Rs.100 crore is invested in government's own securities. Even if the government's cash balance is invested in securities and goes into investment account of the central government, the impact on the market of such high balances is the same. It would be appropriate at least to indicate in a foot note that so much amount of cash balance is invested in government securities. The impact of such high balances is technically equivalent to a CRR imposed on the system. Yet another issue is that RBI indirectly pays interest equivalent to interest on invested securities, since the interest on such securities accrue to the government. Since RBI is not paying any interest on banking system's balances on account of CRR, it would be proper for RBI not to extend the benefit of investment of surplus cash balances of the government in its own securities. Rakesh Mohan committee on Financial sector assessment earlier recommended that such surplus cash balances can be lent in the overnight market, since such accumulation of balances cause every time a cash crunch, rather unintended, on the system. On this also, no decision seems to have been taken. Yet another irony is that government continues to borrow heavily even when it has huge cash balances which only precipitates the cash crunch caused by the surplus balances.
Yes. This is a ridiculous practice to say the least. Previously when government's cash balance exceeded Rs.50,000 crore, the amount was invested in government's own securities. Now perhaps the entire amount over and above Rs.100 crore is invested in government's own securities. Even if the government's cash balance is invested in securities and goes into investment account of the central government, the impact on the market of such high balances is the same. It would be appropriate at least to indicate in a foot note that so much amount of cash balance is invested in government securities. The impact of such high balances is technically equivalent to a CRR imposed on the system. Yet another issue is that RBI indirectly pays interest equivalent to interest on invested securities, since the interest on such securities accrue to the government. Since RBI is not paying any interest on banking system's balances on account of CRR, it would be proper for RBI not to extend the benefit of investment of surplus cash balances of the government in its own securities. Rakesh Mohan committee on Financial sector assessment earlier recommended that such surplus cash balances can be lent in the overnight market, since such accumulation of balances cause every time a cash crunch, rather unintended, on the system. On this also, no decision seems to have been taken. Yet another irony is that government continues to borrow heavily even when it has huge cash balances which only precipitates the cash crunch caused by the surplus balances.
- K.Kanagasabapathy
No comments:
Post a Comment