Reserve Bank of India (RBI) governor D Subbarao on Tuesday took a dig at the recent public spat between RBI deputy governor KC Chakrabarty and State Bank of India (SBI) chairman Pratip Chaudhuri on the issue of the relevance of Cash Reserve Ratio (CRR).
CRR is the amount of
deposits that banks park with the RBI as a prudential measure without earning interest on it.
"Late last night I signed off a paper forming a committee," said Subbarao at a banking conference organised by the Federation of Indian Chambers of Commerce and Industry and Indian Banks Association.
"The terms of reference for the committee are whether we should continue with CRR or not. Members of the committee are Chakrabarty and Pratip Chaudhuri."
"The process of the committee will be that both of them will be locked up in a room until they reach a conclusion and the time frame is that they will not submit their report till my term as governor is over," said the governor after which audience broke into laughter.
The spat began on August 23, when Chaudhuri said the RBI should either do away with CRR or compensate banks for the losses incurred, since banks were not earning any interest on the reserves.
The remark had invited a sharp reaction from Chakrabarty.
Coming back to economics, the governor said that due to poor fiscal conditions, the government will find it difficult to re-capitalise banks to help them meet Basel-III norms, but bringing down its holdings to below 51% can help tide over the problem.
Basel guidelines are aimed at strengthening banks' capital base and improve their ability to withstand shocks.
Banks would need a capital infusion of R175,000 crore and non-equity capital of Rs. 325,000 crore, taking the overall requirement for Basel III to Rs. 500,000 crore.
"The government needs to infuse Rs. 90,000 crore into state-run banks to maintain majority shareholding under Basel III norms, which given its precarious fiscal position, will be a difficult task," he said.
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