RBI governor sees need for CRR, SLR cut
RBI governor D Subbarao on Tuesday said there could be a need to reduce the CRR and the SLR, giving reason for cheer to banks that are facing liquidity shortage after the central bank took measures to suck out liquidity to shore up the rupee.
Reserve Bank of India (RBI) governor D Subbarao on Tuesday said there could be a need to reduce the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR), giving reason for cheer to banks that are facing liquidity shortage after the central bank took measures to suck out liquidity to shore up the rupee.
“I do recognise that there is a demand, and perhaps a need, for further reduction (in CRR and SLR),” said Subbarao addressing a banking seminar organised by Indian Banks’ Association.
The CRR, or the amount of cash lenders must deposit with the RBI, stands at a record low of 4%, while the SLR, which includes securities such as government bonds, stands at 23%.
The RBI has recently tightened monetary conditions by raising short-term interest rates and draining cash in a bid to defend the rupee.
Subbarao, who will demit office on September 4, cautioned against making a ‘too-large-to-fail’ bank, saying what is needed is not monopolies but a number of comparatively large banks.
“We don’t need monopolies. Instead, we need four-five banks of big size, as large banks can become too big to fail, leading to moral hazard problems,” he said.
The governor said though consolidation brings higher capital base facilitating increased lending activity and faster GDP growth, it challenges regulatory issues.
Since the first round of bank nationalisation in 1969, there were 41 mergers and acquisitions in the banking sector.
