Bankers for CRR cut by 1 pc point for infusion of liquidity

Mumbai, Mar 28 (UNI) Senior bankers today urged Reserve Bank of India (RBI) to reduce cash reserve ration (CRR) by atleast one percentage point to enable them avail immediate liquidity of around Rs 2,000 crore.

In their interaction with RBI Governor Y V Reddy at the Central bank's headquarters here this morning, the bankers representing the Indian Banks Association cited the acute shortage of liquidity faced by them in providing funds to the productive sector of the economy, particularly the large infrastructure projects and agricultural finances.

Asked about the outcome of the meeting, an RBI official told UNI that it was an usual meet that the Cenral bank has regularly, prior to the announcement of the Monetary and Credit Policy stance.

RBI is scheduled to announce its annual policy stance on April 28.

The meeting was called by RBI to gather feedback from the bankers about the market conditions and also their operational needs.

Union Bank of India CMD Cherian Verghese said that the basic issue of the meeting was the liquidity crunch being faced by the banks.

There are several options before RBI to provide comfort to the banks for availing greater liquidity such as CRR cut, making bank deposits more attractive with tax incentives and also allowing banks to tap NRIs resources with greater freedom, he said.

''Liqudity is tight in the system in the light of huge growth in credit offtake,'' IBA Chief Executive H N Sinor told reporters after the meeting with RBI Governor.

''There is a significant shift in deposit mobilisation pattern now. Earlier, there was a strong mix of retail-and-current deposits, but now banks are resorting to bulk deposits.

Mutual Funds have become strong competitiors to banks for attracting funds. ''We discussed how deposits could be made more attractive to investors'', Mr Sinor said.

The IBA has suggested deregulation of NRI deposits, a cut in CRR and further unwindig of securities under the market stabilisation scheme (MSS) to tackle the liquidity crunch.

''Once the infrastructure projects take off, there would be strong demand for resources, which could put further pressure on banks,'' Mr Sinor said.

IBA chairman A K Purwar said that with incremental credit-deposit (C-D) ratio at 100 per cent, resources (liquidity) is an issue.

Other issues discussed were the interest rate scenario, agriculture lending, infrastructure financing, hybrid capital instruments and implementation of Base-II norms.

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