RADICAL CALL Abolish CRR, says SBI chief

Kolkata: The chairman of the country's largest lender State Bank of India (SBI), 

Pratip Chaudhuri, has called for either a complete abolition of cash reserve ratio (CRR) for banks or, alternatively, a level playing field by imposing the reserve requirement on insurance and finance companies and debt mutual funds. 
    "CRR does not help any body. It is locked up in the vault and not ploughed back into the economy. It is unfairly applied on banks. If CRR is a liquidity mop-up tool, why not apply it to insurance companies, NBFCs and debt mutual funds, who as well mobilize deposits from the public?" he asked. 
    CRR refers to that portion of deposits that a bank has to mandatorily keep with RBI without earning any interest as part of prudential measures. Along with CRR, banks are required to invest a portion of their deposits in government securities as part of their statutory liquidity ratio (SLR) requirements. 
    Although CRR has come down from its peak level of 15% in 1994 to 4.75% at present, RBI had some years ago ceased to pay interest on CRR. Following liberalization, RBI has also reduced its SLR prescription from a peak 38.5% to 23%. 
    Speaking to reporters on the sidelines of a banking conclave organized by FICCI, Chaudhuri said: "It 
needs to be phased out as it does not earn any interest income and increases pressure to earn more from remaining resources." He added that this in turn translated into a cost increase which benefits none, unlike SLR which funds the government and contributes to the economy. 
    According to Chaudhuri, the bank has already represented this to RBI which has in recent months brought down the reserve requirement by 125 basis points, perhaps in response to the bank's representation. "If the money released (by the CRR cut) goes for production, then production across sectors will increase and bring down prices," he said. 
    After stressing on the need to phase out the CRR, the SBI chief termed the current norms of classification of a non-performing asset (NPA) as "draconian" and "detrimental".