Time to trim CRR by 50 bps, says SBI chairman

The Chairman of public sector lender State Bank of India (SBI), Pratip Chaudhuri, pitched for 50 basis points (bps) reduction in cash reserve ratio (CRR), apart from a cut in interest rate on government deposit, so as to pass on the benefits to borrowers.

In the backdrop of 5 per cent GDP growth rate in FY2013, due to sharp decline in manufacturing activity, he said, “There is every room for an accomodative (sic) monetary policy and it would extremely help if the RBI reduces the CRR by 50 bps. Also, if the rate on government deposits is also reduced, the two would lead to lower interest rates.”

He was speaking at a corporate social responsibility event of SBI’s associate bank State Bank of Mysore here on Tuesday.A 50 bps cut in CRR would release about Rs 36,000 crore additional liquidity into the system. CRR is the amount that all scheduled commercial banks are required to maintain with the RBI as a percentage of their total net demand and time liabilities to ensure solvency and liquidity of banks.

On surging gold imports and efforts to tackle it, he reiterated that gold ETFs should not be treated with kid gloves. “The rate of tax on capital gains from gold ETFs is 10 per cent if you hold it for one year. There is every reason to increase it to 30 per cent.”

On the government’s reported move to restrict sale of gold by banks and its impact, Chaudhuri said, “We can put a stop on sale of gold if the government wants to, but it would make only some difference. We need comprehensive, well-thought steps to tackle the situation.”

On the rupee’s continuing slide against the US dollar, he said, “The theory is that the difference between the inflation rates of the two economies (India and the US) should adjust the currency side. So, in one year, the rupee should correct itself. But if that doesn’t happen, there could be problems.”

Chaudhuri also confirmed that one of the five associate banks of SBI would be merged with itself this financial year and the rest later. “There is emotional integration, rationalisation of network, managing customers, especially on the lending side... it takes about two years.” SBI, he said, will be finalising fund-raising plans for this year by next month and it would be Tier-II capital.