SBI chief Pratip Chaudhuri sticks to view on CRR

MUMBAI: State Bank of India Chairman Pratip Chaudhuri on Tuesday reiterated his demand for abolishing the cash reserve ratio ( CRR) requirement on banks, a day after his original plea was summarily rejected by a top central bank official.

Chaudhuri, who last week created a stir by saying CRR requirement should be done away with as it was costing banks some Rs 21,000 crore in interest, played down the regulator’s terse response to his comments, saying they had triggered a debate. “We have started a debate on CRR in the public domain, so let that debate happen,” Chaudhuri told ET, when asked for his reaction to RBI deputy governor KC Chakrabarty’s response to his demand.

“If the SBI chairman is not able to do the business in this regulatory environment, he has to find out some other place,” Chakrabarty was quoted as saying on Monday. The RBI mandates that banks keep 4.75% of their deposits in cash with it, locking up as much as Rs 2.5 lakh crore, which does not earn any interest.

Chaudhuri, who has been a crusader against CRR, repeated his case that it served no purpose, especially since banks already had 23% of their deposits parked in government bonds as statutory liquidity ratio ( SLR). This, he argued, was more than enough to safeguard depositors and lenders in times of a liquidity crunch, making high CRR unnecessary.

“Why not completely abolish CRR? What is the purpose of CRR: to prevent banks from going into insolvency. You have 23% SLR requirement, which you can’t give as collateral to raise any loan. So how does a CRR of 4.75% help?” he asked. A cut in CRR, it is argued, could help bring down the cost of funds for banks, which can be passed on to customers, who are feeling the pinch of high lending rates.

“Like when they reduced CRR last time, all banks reduced rates in some form or the other — while some lowered base rates, some lowered their spread,” said Chaudhuri. The RBI reduced CRR by 75 basis points in two phases since April, following which most banks lowered their base rate. SBI reduced the spread on retail loans and on loans to small businessmen. Chaudhuri’s demand, however, does not have the unstinted support of his peers.

“I understand where he (Chaudhuri) is coming from, but I don’t necessarily subscribe to his views,” said S Raman, CMD of Canara Bank. “I don’t think CRR can be completely abolished in India given the high level of inflation.”