Rajan vows to make life easy for banks

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  • Published 7.08.14
Rajan: Long-term view

Mumbai, Aug. 6: Reserve Bank governor Raghuram Rajan today said the central bank was in favour of bringing down “pre-emptions” that include both the statutory liquidity ratio (SLR) and the cash reserve ratio (CRR).

His comment comes a day after the apex bank brought down SLR by half a percentage point to 22 per cent in its third bi-monthly monetary policy. It however, retained CRR at 4 per cent.

SLR is the portion of bank deposits which must be invested in bonds; CRR is the proportion of deposits that must be maintained with the RBI.

Priority sector lending, under which banks must lend a portion of their credit to select sectors, is another such pre-emption.

Rajan was speaking to analysts at a post-policy conference call.

“The broader, long-term programme of five years is that we should reduce the amount of pre-emptions we have in the system, including SLR, and make a more effective priority sector lending process,” he said.

Rajan drew attention to the Nachiket Mor committee on priority sector lending.

“These are necessary changes in the system and should not be seen as tied to the monetary cycles,” he added.

Banks have been asking the RBI to bring down pre-emptions such as SLR and do away with CRR or bring it down to below 3 per cent.

The RBI governor admitted that the reduction in SLR would not make a significant impact as banks would continue carrying excess SLR for the “foreseeable future”.

The SLR cut has the potential to release an additional Rs 40,000 crore into the system. However, he pointed out that the cut would provide funds to productive sectors when the economy picked up.

To a query on volatility in call money rates, Rajan said the central bank would soon come up with some measures to reduce it.

Call money is that rate at which banks borrow from each other.

Though the RBI would like the rate to be close to the repo rate (8 per cent), it has in the recent past hovered around 7-9 per cent.