| Reddy: Solutions man
Mumbai, March 28: Stuck in the middle of a major resource shortfall, bankers today met the Reserve Bank of India (RBI) brass with one plea ' take urgent measures to improve liquidity in the system. The suggestions included reducing the cash reserve ratio (CRR), releasing money by unwinding securities under the market stabilisation scheme (MSS) and making NRI deposits more attractive.
At this pre-credit policy meeting, which comes at a time when advances are growing at a rate of 32 per cent and deposits at 17 per cent, the RBI brass comprising Y.V. Reddy and other deputy governors refrained from taking any policy decisions. However, by the end of the day, the central bank did give in to one of the requests made by the bankers.
Accepting the plea to make FCNR(B) deposits more attractive, the central bank raised the interest rate ceiling on these deposits by 25 basis points. Accordingly, the interest rates on these deposits of all maturities will now be on a par with the Libor rate. Earlier, the central bank had fixed the interest rates on these deposits at 25 basis points below the Libor.
Faced with a liquidity shortfall of over Rs 1 lakh crore, bankers had urged the RBI to deregulate interest rates on both FCNR(B) and NRI deposits. According to the annual report of the RBI for 2004-05, the outstanding FCNR(B) deposits for the year ended March 31, 2005 stood at over $11 billion.
Though bankers are optimistic that the central bank will also relax restrictions on NRI deposits that bar them from offering an interest rate of more than 75 basis points over Libor, they may have to wait till April 18 for that when the central bank announces its lean season credit policy.
The bankers’ team at the meeting was led by State Bank chairman A.K. Purwar, who also heads the Indian Banks’ Association (IBA).
Later IBA chief executive H.N. Sinor, who also attended the meeting, told newspersons that there were three ways in which liquidity could be infused. Apart from bringing down the CRR, which is now at 5 per cent, the RBI could release money under the MSS and also relax or de-regulate NRI deposits.
Bankers say that even a one percentage point cut in CRR will inject close to Rs 20,000 crore into the banking system.
Purwar said the bankers discussed many issues, including money, credit and growth. Hinting that the bankers did not get any commitment from the RBI, Sinor said any liquidity measure is a prerogative of the RBI. “When the liquidity consideration comes, the RBI will take care of it,” he added.