Roadmap Clear On Moving To 3% CRR

Updated: Oct 30 2002, 05:30am hrs
Well, there are no surprises this time. The roadmap is very clear on moving to a three per cent of cash reserve ratio (CRR) in line with the recommendations of the Narasimham Committee-II. Otherwise, there was no need for this step. Payment of interest on monthly rests will benefit the banks.

Cherian Verghese, CMD Corporation Bank
The suggestion to pass on the benefits of lower interest rates to the customer would continue the inclination towards softer interest rates. The suggestion to levy commitment charges on borrowing companies having loan facilities would help check the present practice of some highly-rated corporates to scout for borrowing at a finer rates.

This will give some reasons to lending below prime lending rate (PLR) and will make big corporates to pay some fee for having overdraft or other facilities. The RBIs initiative to seek some flexibility in implementing future Basel Committee recommendations would be of help to the domestic banks. This will enable the banks continue with some domestically established systems and procedures.

The suggestion to pass on the low rates to customers may lead to minor re-adjustment of PLR as well as deposit rates. However, PLR has lost its significance as a benchmark rate already, with sub-PLR coming into being. The same is the case with the bank rate. There is no significance for this as there is no need (for the banks to borrow from RBI).

One good relief in the policy is not freeing of savings bank deposit rate. The deregulation of the rate would have led to an unhealthy competition among the banks for deposits leading to hike in deposit rates.

CRR release may increase the yields as they can be deployed elsewhere.