Mumbai: Sticking to his demand for doing away with the mandatory cash reserve ratio or CRR, State Bank of India Chairman Pratip Chaudhuri Monday said that merely citing some existing rules do not justify the practice.
"I feel that though people have said that it cannot be done, there have not been enough grounds to say why," he told reporters here.
To a specific question whether banks should lobby with the government to get the CRR abolished, Chaudhuri said, "Just to argue that this is the rule and this is the law... I do not think it is the best way to justify a particular set of (rules)."
By doing away with the CRR, which is currently pegged at 4.75 percent and on which banks earn no interest, the banking system can get as much as Rs 2.6 trillion which could extended as loans.
There has been a public debate ever since Chaudhuri last week said CRR should be done away with. RBI sharply criticised the suggestion.
Hitting out at Chaudhuri, RBI Deputy Governor K C Chakrabarty, who himself had made a similar demand when he was banker before moving onto the RBI, said that Chaudhuri's demand was untenable as it went against the rules.
"...If the SBI chairman is not able to do business as per our regulatory environment, he has to find some other place," Chakrabarty had said last week.
Chaudhuri said his idea was to merely start a debate on the issue as the CRR requirements do not fetch any interest and secondly, if all feel that CRR is a liquidity sterilisation tool, then other financial sector participants like mutual funds, non-banking lenders and insurance companies should also have similar requirements.
The SBI chief, meanwhile, appreciated the role played by the RBI and other financial sector regulators in being extra diligent in monitoring the activities of large companies.
Citing the case of state-run life insurance behemoth LIC picking up stake in public sector undertakings, Chaudhuri said the regulator rightly feels about the need to not have any cozy relationships.
First Published: Monday, September 03, 2012, 21:24