Existing laws don't allow interest on CRR, says Chakrabarty

"Under the present law, I can't pay interest on the CRR...that modification came four-five years ago...The government should change the rule (for payment of interest on CRR)," Chakrabarty said in an interaction at his office.

"If the CRR is a cost on banks, then they can adjust that somewhere else," he added.

Explaining the rationale behind the regulatory mandate, the deputy governor, who looks after banking supervision, apart from a host of other departments at the central bank, said the CRR is charged on banks because only they can create money.

"Who creates money?...It's only bank deposits that too chequeable deposits or demand deposits that create money. That's why CRR is imposed only on banks...if a bank gives money to NBFCs, it will go not to NBFC but to some bank accounts (of NBFCs)," Chakrabarty, who recently got a two year extension, said.

Non-banking finance companies (NBFCs), insurance companies or any other financial institution can't be equated with the banks with regard to CRR as they don't create money, he said.

The CRR is the portion of deposits that banks have to keep with the RBI for which they don't earn any interest. CRR stands at 4.25 per cent currently, while the policy rate or repo (rate at which the RBI lends to banks) stands at 8 per cent.

Most of the profits that RBI accrues (last year it paid

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