The chairman of the State Bank of India, Pratip Chaudhuri, today said the cash reserve ratio (CRR) must be abolished as it is retarding rather than aiding economic growth.
Chaudhuri went so far as to say that the CRR – the amount commercial banks must compulsorily park with the Reserve Bank of India – was costing the Indian banking system Rs21,000 crore a year.
He said CRR was a burden unfairly put on banks.
''Why is CRR not applied to insurance companies, non-banking finance companies (NBFCs) and mutual funds? These are also capable of mobilising deposits from the public," the chief of the country's largest lender told newspersons at a FICCI banking conclave in Kolkata.
The central bank has currently fixed the CRR at 4.75 per cent.
"It doesn't help RBI, doesn't help banks, the industry and the country either. We have recommended every time to the RBI to phase out CRR. Most of the banks and even the finance ministry have made the point to the RBI," he said.
Chaudhuri pointed out that CRR does not earn any interest; thus it is leading to cost increase for the industry "without benefiting anybody".
The RBI should either do away with CRR or compensate banks for the losses incurred, Chaudhuri said. "Phasing out CRR would release scarce capital resources which will help banks in reducing rates for industry."