Letters: CRR is not beyond debate

Apropos the issue of whether we need the cash reserve ratio (CRR) or not, Deputy Governor K C Chakarbarty needs to rethink his position that regulatory issues need not be subjected to debates. If the Constitution of India can be amended 116 times over 62 years, why can’t we consider changing the regulatory framework? State Bank of India Chairman Pratip Chaudhuri’s suggestion that CRR doesn’t benefit anybody can’t be denied. It’s a well known fact that banks’ profits are under stress because of non-performing asset (NPA) norms, and the money locked up as CRR and statutory liquidity ratio.

If the Reserve Bank of India (RBI) decides to pay two per cent interest on CRR, it will work out to a hefty sum of Rs 5,960 crore a year; the move will improve banks’ bottom lines,strengthen reserves and help meet the recapitalisation needs of the banking system for implementing Basel III norms.

 

Though I admire the RBI governor’s sense of humour in dealing with the contentious CRR issue, on a more serious note, we need to set up a committee to review RBI’s regulatory framework since it is outdated and has failed to give results. RBI should also take care of the loopholes in the framework that enable companies to dupe investors in rural areas. A complete overhaul of the Banking Regulation Act and the RBI Act is imperative to secure the interests of all stakeholders.

Yogendra Pal Udaipur

...but the last word is RBI’s

A debate on the cash reserve ratio (CRR) is welcome since it is critical from the point of view of bankers as well as the regulator. CRR is currently not yielding any interest for banks and this is a matter of concern, especially since their incomes, profits and resources are under severe strain in an increasingly uncertain environment. From the Reserve Bank of India’s (RBI’s) perspective, CRR is vital for controlling liquidity in the system. And indeed RBI should have the final say on the issue since CRR is part of the monetary policy, which is the sole preserve of RBI.

Srinivasan Umashankar Nagpur.

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