Work within framework or do biz elsewhere: RBI tells SBI chief
CHENNAI, AUG 27:
The central bank today came down heavily on SBI Chairman, Pratip Chaudhuri’s statement on phasing out of CRR, saying either comply with or do business elsewhere.
Responding to a question on the sidelines of a financial conference on systemic risk, organised here by Great Lakes Institute of Management, the RBI Deputy Governor, K.C. Chakrabarty, said the banks must work within the framework prescribed by the regulator.
“If the SBI Chairman is not able to do the business in this regulatory environment, he has to find out some other place.”
The SBI Chairman recently said, “CRR doesn't help anybody. While CRR is not applied to insurance companies, NBFCs and mutual funds that are also mobilising deposits from the public, it is unfairly put on banks.
Using an analogy of a tree catching fire, which spreads across the forest, Chakrabarty said, “SBI is too big to fail”. If it is not protected, the risk may catch other banks leading to a systemic failure
| RBI slams SBI chairman for his CRR comment |
| Pratip Chaudhuri recently said that 'CRR doesn't help anybody and is unfairly put on the bank' |
| BS Reporter / Chennai Aug 27, 2012, 14:08 IST The Reserve Bank of India Deputy Governor K C Chakrabarty today said that the banks must work within the frame work of the regulatory norms. The comment comes in wake of the recent comment made by the State Bank of India Chairman on Cash Reserve Ratio (CRR). SBI Chairman Pratip Chaudhuri recently said that CRR should be phased out and that it "doesn't help anybody and is unfairly put on the bank". When this was mentioned to Chakraborty he said, “If the SBI Chairman is not able to do the business as per our regulatory environment, he has to find out some other place." CRR is the percentage of deposits that commercial banks must keep with the central bank. According to Chaudhuri CRR acts as a tax on the banking system, placing the banks at a competitive disadvantage vis-a-vis NBFCs and mutual funds and, moreover, RBI does not pay any interest to the banks. To articulate his argument, Chakraborty used an analogy of a tree catching fire, which later spread across the forest, “If SBI is not protected, the risk may catch other banks leading to a systemic failure and SBI is too big to fail." http://www.business-standard.com/india/news/rbi-slams-sbi-chairman-for-his-crr-comment/184247/on
Mon, Aug 27, 2012 at 17:00
Play by rules or look elsewhere, RBI's message to SBI bossA top RBI official today snubbed SBI Chairman Pratip K Chaudhuri for his remarks suggesting abolition of Cash Reserve Ratio, bluntly telling him that he has to find "some other place" if he could not work as per the central bank's regulatory environment.
Atop RBI official today snubbed SBI Chairman Pratip K Chaudhuri for his remarks suggesting abolition of Cash Reserve Ratio, bluntly telling him that he has to find "some other place" if he could not work as per the central bank's regulatory environment.
"If the SBI Chairman is not able to do business as per our regulatory environment, he has to find some other place," RBI Deputy Governor K C Chakrabarty said in a sharp reaction to Chaudhuri's recent comment that CRR does not help anybody and it was unfairly put on banks.
http://www.moneycontrol.com/news/economy/-rbi-snubs-sbi-chiefcrr-comments_749755.html
Chakrabarty was responding to a question by a student of Great Lakes Institute of Management near here during its third annual financial conference "Systemic Risk". To another query as to "which banking tree needed to be protected", Chakrabarty, drawing an analogy to forest fire, said: "Obviously it is the SBI. SBI is too big a tree. If you fail to protect SBI tree, it (the fire) may spread on to other banks and it will turn out to be a systemic failure." Chaudhuri had questioned why the CRR was not applied to insurance companies, non-banking financial companies and mutual funds, who are also mobilising public deposits. "CRR doesn't help anybody and it is unfairly put on the banks," the chief of the country's largest public sector State Bank of India had said last week. Keeping required funds with the Reserve Bank without any interest was costing the banking system about Rs 21,000 crore, Chaudhuri had said. CRR is the amount of deposits banks keep with RBI in cash. In its quarterly monetary policy review, RBI had last month retained the CRR at 4.75 per cent and reduced the Statutory Liquidity Ratio (SLR) -- the amount of deposits banks park in government bonds -- by 1 per cent to 23%, effective August 11. It had also left key interest rates untouched, a move that disappointed industry and retail borrowers. SBI’s chief’s call for scrapping the CRR (cash reserve ratio) is irresponsible
Had the issue been raised by anyone else, it could have been out down to ignorance. But when the question, ‘Why is CRR (cash reserve ratio ) not applied to insurance and other companies who are mobilising deposits from the public?’ is raised by Pratip Chaudhuri, the Chairman of The State Bank of India (SBI), the country’s largest commercial bank, desperation, rather than ignorance, is, perhaps, the only reason.
Banks, unlike insurance and other companies, alone have the capacity to create credit and add to money supply. They are part of the payments system. The collapse of a systemically important bank has consequences that go well beyond the banking sector and encompass the larger economy, as the events of the past three years have shown. That is why governments everywhere have repeatedly bailed out banks (and with tax payer money) even while allowing other companies to go under.
Sure you can have non-bank financial companies that are also systemically important - AIG in the US context being a classic example - but those are more the exception than the rule. Hence the need for additional safeguards in the case of banks. Apart, of course, from the fact that CRR is a monetary tool that the RBI needs to retain to tackle inflation in the present high-inflation situation.
Chaudhuri knows this better than most. So why is he calling for scrapping the CRR? Well, chances are that faced with slowing deposit growth, rising non-performing assets, and pressure from the government to continue lending aggressively, the SBI Chairman is hard-pressed for additional funds to lend.
Scrapping the CRR) might seem the easiest option since it would, ‘Release scarce capital resources which will help banks in reducing rates for the industry.’ But is it worth the price? Also are corporates presently deterred by high interest rates (the RBI is on record that real interest rates today are lower than the pre-crisis period) or by government’s inability to get its act together?
As head of the country’s largest bank, Chaudhuri cannot afford to think only of his immediate need for funds but ponder on the larger systemic consequences of scraping CRR or even paying interest on CRR balances before he makes such statements. CRR needs to be scrapped, eventually. But now is not the time.
RBI official snubs SBI chairman in public
A senior Reserve Bank of India (RBI) official Monday ticked off the chairman of State Bank of India (SBI) in public, saying he should look for other work if he is unable to function within the parameters laid down by the central bank.
Answering a student's question on SBI chairman Pratip K. Chaudhuri's recent comments on phasing out of cash reserve ratio (CRR), at Great Lakes Institute of Management (GLIM) near here, K.C.Chakrabarty, deputy governor of RBI said: "If the SBI chairman is not able to do business as per our regulatory environment, he has to find out some other place." Chaudhuri had said that the CRR (Cash Reserve Ratio) - a percentage of deposits that banks have to maintain with RBI - has been unfairly imposed on the banks while so such restriction is there on insurance companies, non-banking finance companies and mutual funds. The SBI chairman also said that the RBI does not pay any interest on the CRR maintained by the banks. Chakrabarty was at GLIM to participate in the Financial Conference on Systemic Risk. However Chakrabarty supported SBI as the bank to be supported as it is a big banking tree to be allowed to fall. Chakrabarthy said the interest rates will come down automatically if the inflation is controlled. According to him the major focus should be on increasing the productivity in manufacturing and the farm sectors. Chakrabarty said the country is facing three challenges - high inflation, current accout deficit and fiscal deficit. He said it is enough if the country replicates the Punjab, Haryana and West Uttar Pradesh the achievements in farm sector in other states then the food inflation would come down. According to him India and China cannot afford to import food as the global prices would shoot up if they do that. On containing the manufacturing inflation, Chakrabarty said the sector should adopt technology to reduce cost. According to him reducing imports of gold and oil would enable the country to check current accout deficit while subsidies should be targeted to reduce the fiscal deficit. http://www.thesundayindian.com/en/story/rbi-official-snubs-sbi-chairman-in-public/3/39726/ |
Remarks of RBI Deputy Governor Mr. K C chakravorty on SBI Chairman Sri Pratip Choudhury and the manner it was used was not proper and should be condemned and should be avoided at all cost. He should call Chairman in his cabin and discuss the issue at length. After all the Chairman of such a big bank is also an important personality and deserve due respect. And any ill effect on SBI financials in near future may have cascading effect on other banks. It is known to everyone that concealed NPA is huge and hence slowly profit will face erosion and each bank will face fund shortage and capital crisis. Most of the banks have resorted to improper methods to prepare attractive balance sheet but these steps can give temporary relief and sooner or the later truth has to surface and come out. DG has since come from a bank , he understand the hidden truth and hence he can visualise the future of these banks
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