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Updated: August 28, 2012 19:06 IST

CRR is a cost, manage it: Chakrabarty tells SBI

    N. Ravi Kumar
    K. T. Jagannathan
Comment (10)   ·   print   ·   T  T  
K.C. Chakrabarty, Deputy Governor, RBI, at a conference on Systemic Risk, organised by the Great Lakes Institute of Management in Chennai on Monday. Photo: Bijoy Ghosh
K.C. Chakrabarty, Deputy Governor, RBI, at a conference on Systemic Risk, organised by the Great Lakes Institute of Management in Chennai on Monday. Photo: Bijoy Ghosh

That is what the law also says, explains RBI Deputy Governor

Work within the rules laid down by the regulator. If you can’t, you better find a different avenue where you can do your business, says K. C. Chakrabarty, Deputy Governor of Reserve Bank of India.

He was reacting to a question on the suggestion made by State Bank of India Chairman Pratip K. Chaudhuri to abolish CRR (cash reserve ratio).

“From State Bank point of view, they can ask for abolition of CRR, SLR (statutory liquidity ratio). But, we have to function within the regulatory system in which you are in. If you are not able to do business in the regulatory system in which you are functioning… you will have to find out something else … where you can do business,” Dr. Chakrabarty said in an interaction with The Hindu here on Monday.

Quizzed further, he said, “No, I am not angry [with SBI chairman].’’ In this context, he cited the example of bargaining with a vendor of potatoes in the marketplace. While the vendor quoted Rs.10 a kg, the buyer quoted Rs.3 a kg. “But the fellow [seller] does not agree. So, the deal does not take place.”

The RBI Deputy Governor asked: “What is the regulatory system for? Whether to reduce it [CRR] to zero or increase it, the regulator had the right to decide.”

Asked if the Reserve Bank would seek the opinion of banks on this issue, he said, “Why should I take others’ opinion. My regulatory system is not based on what the opinion of other people is.” When pointed out that many countries did not have CRR, he said, “several countries are not having. But several others are having.

It is the job of Reserve Bank to decide. Anybody who has to do the business has to do it within the regulatory environment which has been provided.”

The SBI Chairman sought the abolition of CRR on the ground that it did not earn any interest for the banks.

“That is what CRR is meant for,” Dr. Chakrabarty said, pointing out “that is also what the law says.” The RBI, he explained, had no role to play in this. “The Banking Regulation Act says you cannot pay interest on the CRR. The matter is over. If law says certain things, it is like that.”

“If you feel [that RBI decision is an irritant], then pay little bit less interest rate on deposit or charge more interest on loans. How much difference does it make? Regulatory things are your production cost. So, you have to accordingly adjust your pricing,’’ he added.

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The snubbing of SBI Chairman, widely reported in all national dailies, is very unfortunate and deplorable act on the part of the RBI Deputy Governor, Mr.K.C.Chakrabarty. Mr.Pradip Chaudhary, Chairman, SBI holds this high office as a meritorious banker appointed by the highest statutory authority. His views on issues like CRR/SLR have deeper implications for the banking industry in particular and therefore deserve due consideration of the regulatory authority. Instead of publicly ridiculing the SBI Chairman, the deputy governor should have used discretion by using his superior intelligence to argue against CRR abolition. His unwarranted reprimand to the SBI chief needs to be condemned by one and all who matter to restore the dignity of the SBI Chairman and the banking fraternity.

from:  S C Malik
Posted on: Aug 29, 2012 at 13:57 IST

The remarks of K. C. Chakrabarty, Deputy Governor of Reserve Bank of India are certainly not in good taste. He may be a part of Bankers Banker. But that doest not permit him to use arrogant language. He could have used better way of his reply especially English is beautiful Business language.

from:  V.N.Adiseshan
Posted on: Aug 28, 2012 at 18:02 IST

The SBI Chairman's discomfort with SLR must be viewed in a perspective. There is
Q in front of the RBI demanding opening of the floodgates of opening private
banks. Today or tomorrow more private banks will start operations.

Now it is the cardinal principle of banking operations is that borrower must not be
bankers. As with everything in this country , I am sure when eventually private
banking mushrooms , this principle will also be observed in its violation. As it is
after opening up of banking sector to private enterprise, India's experience is not
all that good. At least two very recent instances come to mind where PSU banks
had to rescue collapsing private banks which went to fund their promoters. The
origin of the two large private sector banks which are tremendous success stories
can be traced to government entrprneureship.

Looked in that perspective ,argument for abolishion of SLR etc. is untenable.

from:  MANISH
Posted on: Aug 28, 2012 at 13:16 IST

Why SBI is requesting this kind of move? On who's behalf, SBI is
working? Being a public sector bank, it should focus on customer
service, but not, the ways of increasing profit/margin's, for pvt sector

from:  RAJESH
Posted on: Aug 28, 2012 at 12:46 IST

In this world, everything is subjected to evolution (adapting to the
prevailing environment. Then why can't a regulatory entity be subjected
to change. It would be better to innovate methods to utilise the
resources to generate additional resources for a country like ours.

David William

from:  David William
Posted on: Aug 28, 2012 at 12:09 IST

The comments are not in good taste. RBI always beleives in a consultative process and that is the right way to evolve policies. The " I say, you do" attitude displays arrogance and this will not work. RBI must set the record straight by distancing from what he has said.

from:  Arunachalam
Posted on: Aug 28, 2012 at 12:07 IST

I fully agree with the comments of the Deputy Governor of RBI. CRR is there for a purpose and it is a part of regulatory mechanism. CRR should continue to remain in place.

from:  Srinivasan
Posted on: Aug 28, 2012 at 11:14 IST

This language is not expected from a regulatory bank. It should not have
reacted like "if you can't find your things here, go somewhere else".
Where else will the banks go ? His language is further discouraging
other banks from expressing their free views for change. If a fearful
environment is created, it will not be a healthy development.

from:  mrityunjaya
Posted on: Aug 28, 2012 at 10:11 IST

All banks have to collect deposits at the cost of interest mostly from the huge number of small depositors. 4.75% of the banks' deposits are to be kept with RBI free of interest but the banks' are to incur expenditure on such deposits. The banks' may invest the fund to the borrowers and roll the same profitably. The regulatory system of RBI may be amended so as to no loss to the nationalised banks'. Law is made to meet the demand of the present.The banks' are now to face tremendous pressure within and outside the country to survive.Specially when at the end the capital adequacy ratio and profit earned by individual banks are taken into consideration. RBI may bear the cost from the Government exchequer.In order to regulate the economy of the country,RBI must utilise regularity schemes under the law which banks have to abide by.RBI has to save the nationalised banks. Saroj Chakrabarti

from:  Saroj Chakrabarti
Posted on: Aug 28, 2012 at 09:44 IST

CRR, SLRs are protective measures in order to strengthen risk management mechanism & used as a tool in monetary policy. Why we decrease or increase or change CRR or SLR or Capital Adequacy norms according to the economic condition. Certainly advise for increasing or decreasing or abolishing would have some effect on the economy! Australia Canada Switzerland , New Zealand Hungary etc. have 0-2.5 % CRR. Are the economy not running well there?
Recently the derogatory and undemocratic style adopted by Dy Governor of RBI Mr Chakravorty by saying to quit the post to Chairman of the biggest bank of India like: "If you are not able to do business in the regulatory system in which you are functioning… you will have to find out something else … where you can do business,”
Anyone can advise in a democratic set-up. Mr. Chakraborty may be right in his opinion but it does not mean that some he should make this sort of remarks against any statutory head like SBI chairman?

from:  Madhurendra Kumar Verma
Posted on: Aug 28, 2012 at 08:47 IST
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