Alter Crr On Nri Liabilities To Moderate Forex Flows

The Tarapore Committee has recommended that reserve requirements on bank's non-resident liabilities and overseas borrowings should be on par with those on domestic liabilities.

However, the Reserve Bank of India (RBI) should use the cash reserve ratio (CRR) to impose higher reserve requirement on non-resident liabilities, including overseas borrowing by banks to moderate capital inflows.

The committee felt the present system of maintenance Cash Reserve Ratio exempts a sizeable segment of liabilities of banks, or puts them on a concessional footing. Instead, the focus should be on reducing the average effective CRR, it noted. The committee felt that graduation of reserve requirements could also reflect the policy preference between different schemes of non-resident deposits.

As for the financial insitutions and non-bank entities with non-resident liabilities, it has asked for a level playing field between them.

The panel has recommended that the question of reserve requirements for such entities should be considered in totality to ensure a level playing field between banks and non-banks. It has suggested that to the extent financial institutions and other non-bank entities have non-resident liabilities, reserve requirements for such bodies should be considered in totality to ensure a level playing field between banks and

non-banks.