Replying to questions raised in Parliament, finance minister P Chidambaram said, The RBI will be armed with greater autonomy and authority to deal with subjects under the Act.
Section 42(1) of the RBI Act stipulates that banks have to maintain cash balances with the RBI within 3-20% of their time and demand liabilities. The RBI does not have the powers to reduce the CRR below 3%.The Bill also seeks to empower the RBI to deal in repo, reverse repo and derivatives and validate over-the-counter derivative contracts.
Bankers expect that greater flexibility in setting CRR would make it possible for RBI to encourage greater credit offtake. This would also result in better liquidity management in the system.
The amendment to the Act is also expected to remove ambiguity in trading in derivatives market. The derivatives market has experienced a quantum rise in volumes in the recent past. The absence of a legal status to derivatives contracts had, however, restrained players in actively participating in the market.