The cash reserve ratio (CRR) is required to ensure and control liquidity in the banking system. However, it should be used sparingly and as a last resort. Banks earn no interest on the money locked up as CRR. Hence the Reserve Bank of India (RBI) should not be reluctant to share with bankers at least 50 per cent of its potential earnings on CRR balances. It should not be forgotten that it is public money with banks that is being apportioned to be parked as CRR and it is the public that will suffer if banks earn no interest. If banks are allowed to earn interest on CRR, it will encourage them to price their products to the advantage of customers.
Vijayasenan P Chennai
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