SBI chair wants RBI to seek Parliament nod to pay banks on CRR2 min read . Updated: 07 Dec 2016, 09:11 PM IST
Arundhati Bhattacharya said the RBI should actively consider the idea in order to compensate banks that have done yeoman service in making the demonetisation drive a success
Mumbai: The State Bank of India chairperson Arundhati Bhattacharya on Wednesday demanded the Reserve bank of India (RBI) seek parliamentary nod to pay interest on the incremental cash reserve ratio (CRR) for the fortnight in which the lenders were asked to park excess funds with the central bank.
While hailing the move to withdraw the incremental CRR, she said the RBI should actively consider the idea in order to compensate banks that have done yeoman service in making the demonetisation drive a huge success.
CRR is the mandatory amount that banks have to park with the RBI but there is no interest paid on that amount. On 26 November, RBI had announced an incremental cash reserve ratio (CRR) of 100% of the increase in net demand and time liabilities (NDTL) of scheduled banks between 16 September and 11 November effective the fortnight beginning 26 November. This worked out to be around Rs3 trillion.
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The RBI said the move was intended to absorb a part of the large increase in liquidity in the system following the withdrawal of old high-value Rs500 and Rs1,000 notes. Though the measure was a temporary one, it put an additional burden on the banks as around Rs3 trillion of the fresh deposits went to the RBI and for which there was no interest payment. At the bi-monthly monetary policy review on Wednesday, RBI withdrew the incremental CRR effective the fortnight beginning 10 December.
The move came after the Centre last week allowed issuance of Rs6 trillion worth of a market stabilisation fund by additional issuance of government bonds. “We are very relieved that this additional burden (incremental CRR) that had come on to us is now been taken away. I wish something could be done for the fortnight past when that burden continued but I don’t think we have got any relief from that," Bhattacharya told CNBC-TV18 news channel.
For instance for paying interest on CRR, the central bank has repeatedly said that it cannot be given and it is not allowed by parliament, she said. “Parliament can also be approached for this particular amount of CRR, if the central bank wishes to give us something for it. I don’t really know whether they would, but this is something that would definitely be considered given the fact that the banks have really played a yeoman service in getting this entire demonetisation exercise through and there has been a lot of expenses that we banks have had to incur."
Bhattacharya said a little relaxed view on the issue would be something that the banking sector would immensely appreciate.