This refers to the front-page report “SBI chief gets taste of RBI’s tongue-lashing” (August 28). It is unbecoming of Reserve Bank of India (RBI) Deputy Governor K C Chakrabarty to use such intemperate language to denounce State Bank of India Chairman Pratip Chaudhuri’s suggestion that the cash reserve ratio (CRR) should either be done away with or banks should be compensated for the resultant loss of interest income.
As argued by Chaudhuri, why should banks face this discrimination vis-à-vis Non-Banking Financial Companies and insurance companies that also mobilise public deposits but are not subject to such a restriction? Though it may not be realistic to expect RBI to give up one of its tools of monetary policy, there is no reason why the practice of paying interest on the reserves kept with the regulator can’t be revived. This will help shore up banks’ margins and could contribute to a re-rating of the sector — it is indeed depressing to see many public sector banks trading below their book value. The impact of such re-rating on divestment proceeds will be significant as and when the government decides to reduce its stake in public sector banks whether as a means of bridging the fiscal deficit or for other reasons.
Parthasarathy Chaganty, New Delhi
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