 "SBI chief wants CRR abolished, says NPA worries overplayed")
The country’s largest public sector lender, the State Bank of India (SBI) has strongly proposed phasing out of Cash Reserve Ratio (CRR) to make the banking industry “more efficient”, SBI chairman Pratip Chaudhuri said Thursday.
He has called for a change in non-performing assets’ (NPAs) norms. “There is a need to change the norms relating to NPAs. We should not see a ghost in everything,” said Pratip Chaudhuri.
State Bank of India, spooked investors with higher-than-estimated rise in its non-performing assets in the June quarter, but Chuadhuri feels that the coming quarterly earnings won’t have negative surprises on the bad-asset front.
SBI chief’s comments come despite the RBI flagging off its growing concern over the deterioriation in asset quality of banks, with public sector banks (PSBs) showing particularly obvious signs of stress on this account.
In a report analysing the first quarter results of banks, broking house Motilal Oswal also said the results throw up a negative surprise on margins where all PSBs surprised negatively, despite benefit of CRR reduction and capital raising, due to higher stress on asset quality.
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SBI added close to Rs 7,500 crore of bad loans on a gross basis during the quarter, prompting investors to sell its shares.However, Chuadhuri said concerns over bad loans were largely overplayed. “NPAs are largely in the mid-corporate and SME sectors. But with a little consideration, a little understanding and stretching the repayment period, most of these accounts can be upgraded,” Chaudhuri said.
Welcoming RBI’s discussion paper on dynamic provisioning framework for banks in March, Chaudhuri said there is urgent need to change NPA norms to calm down unfounded panic that crops up whenever cases of doubtful debts go up in the banking sector, DNA reported.
Impact Shorts
More ShortsOn cash reserve ratio (CRR), he said it must be abolished as it is retardis rather than aids economic growth.
“CRR doesn’t help anybody. It is unfairly put on the bank. Why is the CRR not applied to insurance companies, NBFCs and mutual funds who are also capable of mobilising deposits from the public?” Chaudhuri asked while talking to reporters on the sidelines of a FICCI programme.
CRR is the percentage of deposits that commercial banks must keep with the central bank.
Chaudhuri said as the RBI did not pay any interest on CRR, this acted as a tax on the banking system, placing the banks at a competitive disadvantage vis-a-vis NBFCs and mutual funds.
Currently, CRR is 4.75 percent of the total bank deposits.
Chaudhuri pointed out that the rationale for a CRR, which had served the twin purposes of impounding resources to curb speculative lending and ensuring an adequate liquidity reserve for banks, has currently lost much of its validity.
Statutory Liquidity Ratio (SLR), which now stands at 23 percent, was adequate as a solvency and liquidity reserve and additional pre-emption towards CRR was “largely superfluous”, he stated.
SLR is the amount of liquid assets or securities that commercial banks must maintain as reserves other than the cash.
“It (CRR) doesn’t help RBI, doesn’t help banks, the industry and the country either. We have recommended every time to the RBI for phasing out of the CRR… Most of the banks, even the finance ministry, have made the point to the RBI,” he said.
He said as the CRR did not earn any interest, it was leading to cost increase for the industry “without benefiting anybody”.
According to him, the loss to the banking sector because of CRR was to the tune of Rs 21,000 crore.
If that money was released in the market, then production of the country in a lot of sectors would increase, he said.
If the central bank does not do away with the CRR because of inflationary concerns, it could pay interest on it to the banks or could raise the SLR by 4.75 percent, he observed.
“But I would prefer abolition of CRR…it is unnecessary burden. We are better off without it,” the SBI chairman added.
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