SBI chairman pratip choudhury had showed his discontent towards the cash reserve ratio(CRR) comparing CRR to a Non-Performing Asset(NPA).There is a reason behind his statement, for every 100 rupees of fresh deposits raised banks keep aside 4.25 rupees as CRRwith RBI on which they earn no interest income.The balance sheet is hit straight away.... banks now have to deploy rupees 95.75 at commercial rates in such a way as to ensure the depositor earns interest on his rupees 100. But before they do that banks have to invest rupees 24 in government securities under statutory liquid ratio (SLR) which offers the lowest interest rate among all interest bearing asset categories. So now, banks have to earn enough interest income from remaining 71.75 rupees to ensure depositor earn his interest income, but the banks also make health profit. But this is not the end of anomalies. From 71.75 rupees 40 % that is 28.7 has to be allocated to priority sector. At the end of this rather uneconomical model banks are finally left with 43.05 rupees to do commercial banking and earn enough interest income to enable to pay its depositor interest on his 100 rupees,distributing some profits to the shareholders,bonus to employees and plough balance profit to capital for future expansion.
some suggestions from banking industry:
CRR should pay an interest to banks
SLR should be brought down to levels comparable with else where in the world. Slr in many countries is as low as 10% such as in US and 1% in Australia.
Assets of UBS and DEUTSCHE Bank are over 260% and 75% of GDP of Switzerland and Germany, respectively. Assets of ICBC are about 35% of the GDP of China. in Contrast Assets of ICICI, India"S second largest bank are around 6% of India's GDP. Assets of SBI and ICICI taken together are around 25% of GDP.
some suggestions from banking industry:
CRR should pay an interest to banks
SLR should be brought down to levels comparable with else where in the world. Slr in many countries is as low as 10% such as in US and 1% in Australia.
Assets of UBS and DEUTSCHE Bank are over 260% and 75% of GDP of Switzerland and Germany, respectively. Assets of ICBC are about 35% of the GDP of China. in Contrast Assets of ICICI, India"S second largest bank are around 6% of India's GDP. Assets of SBI and ICICI taken together are around 25% of GDP.
