Sbi Unlikely To Get Breather On Crr

The Reserve Bank of India (RBI) is unlikely to exempt the State Bank of India's (SBI) Resurgent India Bond (RIB) and the India Millennium Deposit (IMD) issues from the cash reserve ratio (CRR) requirement.

Even though SBI has not received any official communication from the RBI in this connection, sources familiar with the development said the bank would be required to treat both RIB and IMD as foreign currency non-resident (bank) -- FCNR-B -- deposits and maintain appropriate CRR on this. The State Bank has already started maintaining the extra cash reserve requirements for this purpose in the current fortnightly reporting cycle.

 

The bank will have to set aside Rs 1,150 crore for the purpose of maintaining the CRR on its outstanding Rs 48,000 crore of RIB and IMD. Sources pointed out that the additional amount for maintaining CRR may prevent SBI from cutting its lending rate as this will dent the return on funds. The bank would now get 6.5 per cent interest on this fund (Rs 1,150 crore) which otherwise would have fetched around 9 per cent return. Analysts, however, expect the bank to make a token rate cut of 25 basis points by the end of this month.

The central bank in its October credit policy cut the CRR by two percentage points (in two stages ) to 5.5 per cent, but has brought all non-resident Indian (NRI) deposit under the CRR ambit which was earlier not subjected to full CRR. Going by the rules, all funds are, however, required to maintain three per cent CRR. The State Bank had sought clarification from the RBI on whether deposits raised under RIB and IMD would be subjected to CRR.

SBI argued that the bank has raised liquidity through these for the country and hence it should not be brought under the CRR requirement. RIB scheme launched in 1998 raised $4.2 billion. Launched last year, IMD raised around $5.5 billion.