Comments
This refers to your edit, ‘Easing the blow’ (November 30). The original purpose of CRR is to ensure that banks do not run out of cash to meet the payment demands of their depositors. Liquidity in the system is also addressed by keeping CRR as a monetary policy tool. CRR basically restricts banks from lending. In the normal course, 4 per cent CRR is alright. But making banks maintain 100 per cent incremental deposits in the form of cash or with the central bank amounts to zero earning on these deposits for the banks.
At the same time, banks pay interest on the funds mobilised. Banks also incurred huge costs while collecting the demonetised notes. When demonetisation is a government programme, banks cannot be expected to bear the cost. NPAs are already making them bleed. The Centre and RBI must compensate at least to the extent of interest being paid to banks on these incremental deposits.
S Kalyanasundaram
RBI’s move to impose incremental CRR of 100 per cent on increase in net demand and time liabilities between September 16 and November 11 would lead to increase in the cost of funds of banks. This has happened at a time when banks were thinking of how to manage the excess liquidity arising from demonetisation.
On the positive side, this would help the depreciating rupee stabilise and keep the CAD under control. This would also put a pause to domestic bond buying. The sudden spurt in bank deposits is a temporary phenomenon. Banks have to live with these monetory measures.
Srinivasan Velamur
Chennai
Post demonetisation, banks are flush with deposits. The temptation to dilute the current unhealthy levels of NPAs will be high. Not only will the process of their recovery tend to lose steam, fresh large-scale loans could also lack the level of prudence that had been exercised following intensive auditing. In either case, the common man will be denied compensation. This forced deluge of deposits has enabled a sharp drop in the cost of funds, as also of borrowing by industry.
The CRR hike is timely. It would help contain profligacy in lending even as as loan rates are dropping sharply. It would provide a cooling off period for a stymied financial system that finds itself bloated with cash overnight. The next monetary review hopefully is not hurried into till the post-demonetisation economy truly settles down and hard data emerges. So should it be with the budget, as the present mirage of a fund-flooded economy will skew our policy approach.
R Narayanan
Ghaziabad, Uttar Pradesh
Insulting survey
The survey on demonetisation is laughable because a mere 5 lakh or less than 0.05 per cent of the 10,340 lakh (as of July 2016) mobile subscribers responded. To claim, on such flimsy grounds, that the overwhelming majority of the people of India supported the decision is an insult to our intelligence.
The increasing weakness of Indian democracy lies in the emaciated opposition that keeps inflicting self goals, as the latest tamasha of ‘Akrosh Diwas’ again proved. This is compounded by a “crawling when only asked to bend” attitude readily adopted by the bureaucracy and many ‘leaders’ and institutions such as the RBI. The instruction to BJP netas that they should file expenditure statements camouflages the question of the possibility of information about demonetisation having been leaked to them. The period to be accounted for should have been some months prior to the demonetisation.
N Narasimhan
Bengaluru
Voluntary corps
This is the right time to create awareness among the rural and semi-urban masses about various electronic modes of payments. This can be done only with the help of voluntary organisations of youngsters who are more tech-savvy and enjoy the confidence of the local people. An example of this kind of movement was the literacy mission in Kerala during the late 1980s.
PD Sankaranarayanan
Thiruvananthapuram
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