The Reserve Bank of India Deputy Governor K C Chakrabarty today said that the banks must work within the frame work of the regulatory norms. The comment comes in wake of the recent comment made by the State Bank of India Chairman on Cash Reserve Ratio (CRR).
SBI Chairman Pratip Chaudhuri recently said that CRR should be phased out and that it "doesn't help anybody and is unfairly put on the bank". When this was mentioned to Chakraborty he said, “If the SBI Chairman is not able to do the business as per our regulatory environment, he has to find out some other place."
CRR is the percentage of deposits that commercial banks must keep with the central bank. According to Chaudhuri CRR acts as a tax on the banking system, placing the banks at a competitive disadvantage vis-a-vis NBFCs and mutual funds and, moreover, RBI does not pay any interest to the banks.
To articulate his argument, Chakraborty used an analogy of a tree catching fire, which later spread across the forest, “If SBI is not protected, the risk may catch other banks leading to a systemic failure and SBI is too big to fail."
Currently, CRR is 4.75% of the total bank deposits.