If RBI can8217;t cut CRR,let them pay us interest on it,says SBI

8220;If a CRR cut cannot be done due to inflation worries,let the RBI pay us interest on CRR. We will then do the transmission for sure. If the RBI pays me Rs 500 crore on interest on my CRR,I promise to transmit the entire Rs 500 crore to borrowers by reducing my base rate,8221; SBI chairman Pratip Chaudhuri told PTI recently.

Last year he had triggered off a heated debate by calling for abolition of CRR. He felt that CRR is 8220;dead money8221; and it had led to a public spat with K C Chakrabarty,the RBI deputy governor in charge of banking services,who said that if the SBI chairman is not comfortable working under existing regulations,he should look for 8220;some other sector8221;.

Explaining the rationale for SBI8217;s as well as other banks8217; inability to cut lending rates with minor repo rate cuts that RBI has done by 125 basis points 1.25 per cent since the middle of the past fiscal,Chaudhuri said,8221;The relationship between the repurchase rate and the bank lending rate is rather weak. Bank deposits rates are guided by postal deposit rates and not by RBI rates8221;.

Further,he said that a 25 basis points reurchase rate cut will give an additional income of merely Rs 50 crore to the SBI.

8220;How do I distribute it to my borrowers when my loan book is Rs 7 trillion? Instead,if the RBI reduces CRR by 25 basis points,I get about Rs 3,000 crore. So,if there is a CRR cut,then the transmission is more pronounced,8221; the SBI chairman argued.

Defending banks for not aiding monetary transmission by reducing their base rates,Chaudhuri pointed out that when the RBI increased lending rates by 200 basis points in the past,banks did not increase lending rates in a similar manner.

He also pointed out that the biggest competition for banks when it comes to deposit raising comes from postal savings,which fetch a higher interest rate of 8.5 per cent.

8220;Why should a person withdraw his money from postal savings and deposit in a bank that fetches lower returns?8221; he asked.

Since the middle of the last fiscal,the RBI reduced repo rates by 125 basis points and CRR by 50 basis points,but banks on an average have cut their base rate only by 30 basis points.

Stating that there are many other tools for the RBI to help banks monetary transmission,he said one way is to pay interest on CRR to banks,while another option is to get the minimum tenor of deposits to three days from the current seven

days.

Increasing export credit refinance to 100 per cent from the current 50 per cent,which would help boost exports and in turn could help narrow the huge trade deficit,could also other options,he said.

He also said that the RBI and the government need to signal that they are serious in supporting exports.