Phase out CRR within a reasonable time-frame: SBI’s chairman

In a bid to make the banking industry ‘more efficient’, Country’s largest public sector lender, State Bank of India’s (SBI) Chairman Pratip Chaudhuri, has strongly proposed phasing out cash reserve ratio (CRR). The ratio (CRR) is a bank regulation that sets the minimum reserves each bank must hold to customer deposits and notes, which currently stands at 4.75% of total bank deposits.

On the sidelines of FICCI Banking Conclave, the chairman of PSU bank averred that, ‘the apex bank should either do away with CRR or compensate the banks for the losses incurred as the banking system does not earn any interest on it.’  Although the chairman  accepted that RBI just could not do way with CRR overnight, but highlighted that it should to be phased out within a reasonable time-frame as impounding of this large quantum of lendable resources in a capital-scarce economy with vast requirement for infrastructure, does not stand justifiable.

Besides raising question of the same not being applied to insurance and other companies which are mobilizing deposits from the public, the chairman, highlighted that Statutory Liquidity Ratio (SLR), (currently at 23%), as being sufficient tools to address the issues of solvency and liquidity. Reasoning CRR being non-effective from any-body, the chairman proposed increasing SLR on lines of CRR percentage as deposits under this window are interests bearing.

Meanwhile, downplaying NPA’s concern, Chaudhuri said there is urgent need to change NPA norms to calm down unwarranted jitters that crop up whenever cases of doubtful debts go up in the banking sector.  ‘NPAs are largely in the mid-corporate and SME sectors. But with a little consideration, a little understanding and stretching the repayment period, most of these accounts can be upgraded,’ Chaudhuri added.