The Hindu Business Line : `RBI Amendment Bill to give more leeway'

Legal backing
The Bill would, inter alia, allow the apex bank to set CRR requirement for banks
The RBI will be able to address other key issues, including those related to OTC derivatives

MS SHYAMALA GOPINATH

Kolkata , May 18

The central bank intends to utilise the RBI Amendment Bill, once it becomes a statute, to pursue its risk management strategy more closely. The Bill was passed by the Lok Sabha on Wednesday.

The RBI, which is eyeing more flexibility in denoting CRR and SLR in the wake of the modification, will henceforth look forward to operating in an environment marked by the easing of certain restrictions, Ms Shyamala Gopinath, Deputy Governor, indicated here on Thursday.

The Bill passed by the Lok Sabha would, inter alia, allow the apex bank to set CRR requirement for banks. CRR, which indicates the minimum quantum that banks need to keep as cash reserves, is used either to take away excessive liquidity or to unlock funds that the economy needs from time to time. SLR refers to the minimum quantum that banks must maintain primarily in government securities. The RBI will be able to address other key issues, including those related to OTC derivatives, Ms Gopinath told newspersons with reference to the emerging trends. The idea is to provide a legal backing for the products involved, she added.

On the subject of participatory notes, which have lately assumed great significance in the Indian stock market, the RBI Deputy Governor said the central bank is aware that the views of the Ashok K Lahiri Committee (Expert group on encouraging FII flows and checking the vulnerability of capital markets to speculative flows) are with the Government, which now needs to consider it further.

g-secs participation

The central bank hopes commercial banks will play a role in boosting retail investment in government securities, an area that is seen as quite insignificant in the overall context of the debt market.

"Retail investors are perhaps more keen to look at other alternatives at this juncture, including various fixed-income options," Ms Gopinath said, adding that the current system does provide an investment window for retail participants in the g-sec market.

Non-institutional investors are also considered to be deterred by a shortage of outlets that can facilitate their transactions in these securities.

The stock market on the other hand has seen a rapid expansion in network, courtesy stock broking outfits that have set up shop at multiple locations.

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