State bank of India (SBI) Chairman Pratip Chaudhuri, on Monday, said that the cut in Cash Reserve Ratio (CRR) is the most effective instrument to cut interest rates.
“We have been consistently of the view that the correlation of the CRR and the bank lending rate is very strong, and if the objective is to reduce the bank lending rate, then CRR cut is possibly the most effective instrument for this purpose,” said Mr. Chaudhuri, while addressing a press conference here.
The RBI reduced the CRR by 25 basis points on September 17 from 4.75 per cent to 4.50 per cent, and the SBI cut its base rate from 10 per cent to 9.75 per cent. Further, SBI has reduced the Benchmark Prime Lending Rate (BPLR) by 25 basis points from 14.75 per cent to 14.50 per cent per annum with effect from September 27, 2012.
The SBI Chairman said that the bank was having more than Rs.50,000 crore excess liquidity and would have absolutely no difficulty in meeting additional demand for credit emanating from low interest rates.
SBI is the only bank so far, which cut rates after the mid-quarter review of the monetary policy by the RBI last week. “We are leading the path of low interest rate,” Mr. Chaudhuri added.
On the debt issue of the Kingfisher Airlines, Mr. Chaudhuri said that the promoter, Vijay Mallya, was keen to keep the control of Kingfisher and the brand. “So the sense we have from him is that he is willing to do everything possible to protect the brand.”
The officials of Kingfisher would be meeting the bank officials in a few days to discuss the huge debt (about Rs.7,500 crore) incurred by the airline.
Mr. Chaudhuri said that the asset quality of the bank was very strong. According him, the bank was lending only to top companies in each sector.
In the case of power sector, he said that only the top layer of the companies in the sector was given loans, which would be repaid. Further, he said that corruption involving the coal mines would not affect the loan books or asset quality of the bank.
Kingfisher officials will be meeting bank officials soon to discuss debt issue