House approves bill to amend RBI Act
Decks have been cleared for furthering banking reforms with the Parliamentary panel on Thursday approving a bill that will give Reserve Bank the flexibility to cut Cash Reserve Ratio below 3 per cent.
By PTI |
NEW DELHI: Decks have been cleared for furthering banking reforms with the Parliamentary panel on Thursday approving a bill that will give Reserve Bank the flexibility to cut Cash Reserve Ratio below 3 per cent and come up with new instruments for covering interest rate risks.
"In view of the larger variety of products and participants that have entered the financial market and the need on the part of RBI to use newer versions of financial instruments, the committee agree with the proposals of the bill," Standing Committee on Finance said in its report to Parliament.
With the proposals of Reserve Bank of India (amendment) Bill, the government seeks to do away with the floor and ceiling limits of 3 and 20 per cent respectively and provide greater flexibility to the RBI in monetary management.
At present, the Section 42(1) of RBI Act mandates that banks have to maintain cash balances with RBI within 3-20 per cent of their time and demand deposits.
So, RBI can not reduce CRR below 3 per cent even if there is a shortage of liquidity in the banking system.
The bill also seeks to empower RBI to deal in repo, reverse repo and derivatives and validate over-the-counter (OTC) derivative contracts.
"In view of the larger variety of products and participants that have entered the financial market and the need on the part of RBI to use newer versions of financial instruments, the committee agree with the proposals of the bill," Standing Committee on Finance said in its report to Parliament.
With the proposals of Reserve Bank of India (amendment) Bill, the government seeks to do away with the floor and ceiling limits of 3 and 20 per cent respectively and provide greater flexibility to the RBI in monetary management.
At present, the Section 42(1) of RBI Act mandates that banks have to maintain cash balances with RBI within 3-20 per cent of their time and demand deposits.
So, RBI can not reduce CRR below 3 per cent even if there is a shortage of liquidity in the banking system.
The bill also seeks to empower RBI to deal in repo, reverse repo and derivatives and validate over-the-counter (OTC) derivative contracts.
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"The enactment of the legislation would vest the RBI with substantial operational flexibility and powers by enabling the bank to determine the policy relating to interest rates or interest rate products and give directions in this regard to agencies dealing in money market instruments, foreign exchange as also derivatives," the panel, headed by B C Khanduri, said.
With the House Panel's nod, the bill is now expected to be taken up in Parliament for passage.
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