Bankers want the Reserve Bank of India to include a portion of their gold deposits to meet the statutory pre-emption requirements relating to either cash reserve ratio (CRR) or statutory liquidity ratio (SLR), both of which banks consider as non-productive.

"Is it possible that the regulator can treat a little bit of our gold deposits as CRR or SLR? After all, gold is also a store of value," said Arundhati Bhattacharya, Chairman and Managing Director of State Bank of India, at a Gem & Jewellery Export Promotion Council banking summit in Mumbai.

With gold imports having pressurised the current account gap in the recent past, there is a greater need to make use of gold available in the country and make it more liquid, she stressed.

She said that as one of the largest players in the gold deposit scheme segment, SBI is not able to deploy the available idle gold deposits into productive assets.

"We also find that we are not able to deploy the entire gold that we get. There is really no incentive for us to go ahead and get more of these deposits now so as to make gold more liquid," she said.

CRR, at 4 per cent now, is the portion of cash deposits parked by banks with the Reserve Bank of India that earns no interest, while SLR, at 22.5 per cent, is the amount of deposits to be mandatory invested in recognised securities such as government bonds and other liquid assets, which is blocked and banks cannot use it for business.

Currently, banks do not earn any interest on the CRR, which has been targeted by Bhattacharya and her predecessor Pratip Chaudhuri who also demanded abolishing of CRR.

However, the average SLR holding in the system is 27 per cent as banks make use of treasury play to boost their bottom lines when there is poor growth in advances or increased bad loans.

Agreeing with Bhattacharya, Bank of Baroda Chairman and Managing Director S S Mundra said it "makes sense" to treat a part of banks' gold deposits as CRR and SLR.

"When banks are holding gold, it is of value. I think it makes sense to bring under CRR/SLR. It also fits the larger pattern that ultimately we are talking about unearthing the gold and bringing it to productive sectors in the economy as a whole. The gold that is readily available can be brought under recognition," Mundra told reporters.

Speaking at the event, Financial Services Secretary GS Sandhu acknowledged that the ministry has received several representations on ways to better utilise gold deposits and it is actively looking into the matter.

He stressed the need to monetise gold held by the public to help reduce imports of the yellow metal, which can be a drain on the nation's foreign-exchange resources and lead to a wider current account deficit (CAD).

Curbs on gold imports by the previous government helped narrow the CAD to 1.7 per cent of GDP at $32.4 billion in 2013-14 from 4.7 per cent at $87.8 billion in 2012-13.

"So much gold is lying idle. In some ways if we can monetise this, may be our imports will come down drastically. Something in that direction we will have to think of," Sandhu added

Related Topics
comment COMMENT NOW