Banks Urged RBI to Slash CRR & SLR

Commercial banks at the pre-credit policy meeting with RBI deputy governor Subir Gokarn on 11 January 2011 asked the Reserve Bank of India (RBI) to lower the level of cash and government bonds they are required to maintain as reserves. In the wake of a monetary crunch in the economy, lowering the reserve ratios which are a bank’s percentages of its net liabilities, will free resources that can be lent to support growth. RBI was asked to consider slashing cash reserve ratio (CRR), the portion of customer deposits that banks have to set aside as cash, as well as the statutory liquidity ratio which is the proportion of government securities that banks have to hold on their books. The CRR and SLR currently stand at 6 % and 24% respectively. CEOs of commercial banks suggested at the pre-credit policy meeting a 0.5% to 1% cut in CRR and SLR.

Bankers mentioned to the RBI that a cut in either CRR or SLR, or both will release liquidity in the banking system, which is presently facing a shortage of around Rs 80000 crore. The shortage would require the banks to borrow from RBI on a daily basis. Banks urged RBI to allow them restructure loans given to microfinance firms while retaining standard asset status on such loans. RBI regulation holds any restructured loan to a non-manufacturing entity to be treated as substandard asset on the very day the loan is restructured. Banks demanded that they should be allowed to amortise the pension liabilities over the next five years.