Money & Banking

SBI chief for doing away with cash reserve ratio

M. Ramesh Chennai | Updated on March 12, 2018 Published on November 06, 2011


Insuring export credit would help bring down SBI's capital requirement by 25 bps

The Chairman of State Bank of India, Mr Pratip Chaudhuri, wants the cash reserve ratio (CRR) to be abolished. Today, banks are required to keep 6 per cent of their deposits in cash with the Reserve Bank of India, on which the RBI pays nothing.

Speaking to Business Line on the sidelines of Bancon 2011, Mr Chaudhuri said that CRR is an NPA (non-performing asset) for banks.

Asked what according to him was the appropriate level of CRR, he said that he would like it to be brought to zero.

“I don't mind SLR,” he said, referring to the 24 per cent statutory liquidity reserve to be maintained by banks, in liquid government bonds. “SLR serves a purpose (of providing debt funds to the government),” he observed. He also pointed out that the banks get reasonably good returns.

Responding to another question, Mr Chaudhuri said that SBI had insured all of its export credit with the Export Credit Guarantee Corporation, as a result of which the bank's capital requirement would come down by 25 basis points.

SBI is under pressure to keep pace with capital requirements. One of the means it has devised to achieve this is to insure export credit with ECGC, on account of which the capital call would come down.

The bank believes that while the fee that it would pay ECGC would balance out the losses due to bad debts if the loans were not insured, the benefits would be mainly in terms of lower capital calls.

Also, ECGC fees are fully tax-deductible. On the other hand, there is a cap (of 7.5 per cent of gross income) for loan loss provisions to count as tax deductible expenditure.

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Published on November 06, 2011
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