The Reserve Bank of India’s (RBI) technical advisory committee had considered linking the repo facility to credit-deposit ratio of banks in the third quarter monetary policy review in January, the apex bank said in a statement.
“If implemented, the move could have limited lending to banks with high credit-deposit ratio and those who were borrowing frequently from RBI’s repo window at the same time,” said a senior public sector banker.
In the first ever disclosure of the minutes of the Technical Advisory Committee meeting a week before the announcement of the third quarter monetary policy review, it is stated that a member of the committee had suggested the statutory liquidity ratio (SLR) could be increased to reduce the borrowing capacity of banks and the repo facility could be linked with the credit-deposit ratio of banks to bring in discipline.
Though the central bank did not take this step, it did raise concerns on the widening gap between credit and deposit growth in the review. “The Reserve Bank will constantly monitor the credit growth and, if necessary, will engage with banks which show an abnormal incremental credit-deposit ratio,” RBI said.
The incremental non-food credit-deposit ratio was at 102 per cent by end-December 2010, up from 58 per cent in the corresponding period of the previous year. Credit growth clocked 23 per cent as on January 28, much higher than RBI’s projection of 20 per cent for financial year 2010-11. Banks have been borrowing around Rs 1 lakh crore daily from RBI’s repo facility since November 2010.
Two members of the panel were also of the view that small and managed depreciation in currency could be considered to manage CAD, but RBI maintained it would intervene only if volatility was high.
While one of the members had suggested a 50 basis points increase in the repo rate and 25 basis points increase in the reverse repo rate, another member suggested a rise in the cash reserve ratio (CRR) to contain inflation. But RBI went ahead with a raise in both policy rates by 25 basis points, an action the majority of its members upheld.