C. Rangrajan: CRR is a tool to be used under rare conditions

C. Rangarajan the Chairman of the Prime Minister's Economic Advisory Council stated that there should be a situation, where CRR (Cash Reserve Ratio) can come down and used as an instrument for credit control under extraordinary circumstances on 6 September 2012. With the OMOs (Open Market Operations) turns up to be a tool the role of CRR as credit control will come down in the banking conference of FICCI-IBA.

Till 1991, CRR always remained the major instrument with RBI for credit control because the interest rates were administered with it and therefore the OMOs never were conducted. During the period, CRR saw a continuous growth as the budget deficit were high and was completely financed by RBI. And to control the liquidity growth it was needed to keep the CRR at high levels.

In his statement Rangarajan also said that to keep the competition on in the Indian Banking System periodic entry of new banks must be allowed as the closed system will turn up to be oligopolistic. To allow the entry, central bank should lay some provisions and allow the entities that fulfill each and every criterion fixed. The decisions should also be made with consideration to the economic demands after several decades as a new bank will take at least two decades to achieve a sizeable proportion in the market.