CRR row: RBI Governor doesn't see an end!

Reserve Bank of India Governor Duvvuri Subbarao on Tuesday played down the cash reserve ratio controversy between his senior most deputy and the nation's largest bank SBI, saying that he is not too sure whether the two will sink their differences before he demits office.

State Bank Chairman Pratip Chaudhuri's call last week for abolishing the mandatory cash reserve ratio had attracted a sharp reaction from RBI Deputy Governor K C Chakrabarty.

CRR is the amount of deposits that banks park with the RBI as a prudential measure without earning interest on it.

Chakrabarty had this week frowned on Chaudhuri's contention saying, "If the SBI chairman is not able to do business as per our regulatory environment, he has to find some other place."

In his first public comment since the controversy began on August 23, Subbarao told the bankers at a Federation of Indian Chambers of Commerce and Industry-Indian Banks' Association in Mumbai, "I have an important announcement to make.

"Late on Monday night, I signed off a paper forming a committee.

The terms of reference for the committee are whether we should continue with CRR or not.

Members of the committee are Dr Chakabarty and Shri Pratip Chaudhuri.

"Process of the committee will be that both of them will be locked up in a room until they reach a conclusion and the time frame is that they will not submit their report till my term as governor is over," Subbarao told the audience in a lighter vein.

After the speech, when asked if he was serious or joking, Subbarao retorted: "What do you think?"

However, both Chakrabarty and Chaudhuri continued their spat publicly at the same venue, after Subbarao left.

While the State Bank of India chairman termed the statement of the Governor as "a joke", Charkabarty said the SBI chief is not ready to listen to the regulator, and there cannot be any regulatory issues.

Significantly, the deputy governor, when he was a banker,

had made a similar demand.

"The debate is on. I think he (Governor) meant it as a joke. Of course, I hold the view it (CRR) is not helping anybody," Chaudhuri said.

To this, Chakrabarty retorted: "First make up your mind whether you want to listen or not.

"You don't want to listen to my views. I have made it very clear that there is no question of a debate on a regulatory issue," the deputy governor retorted.

However, he continued to add that "jokingly, we can have a mock fight. I've no problem, he (SBI chief) is a good friend."

On August 23, Chaudhuri had said in Kolkata that the RBI should either do away with CRR or compensate banks for the losses incurred, as banks are not earning any interest on it.

Pegging the loss of banks due to CRR at about Rs 21,000 crore (Rs 210 billion), out of which Rs 3,500 crore (Rs 35 billion) to his bank alone, he said, "CRR does not help anybody and it is unfairly put on the banks.

Why is CRR not applied to insurance and other companies who are mobilising deposits from the public?

Calling for its phase out within a reasonable time-frame, he said that would release scarce capital resources which will help the banks in reducing rates for the industry.

But this had invited a sharp reaction from Chakrabarty.

On Monday, Chaudhuri reiterated his view saying it (CRR) lacks reason and added that merely citing some existing rules do not justify their practice.

"I feel that though people have said that it cannot be done, there have not been enough grounds to say why? Just to argue that this is the rule and this is the law... I do not think it is the best way to justify a particular set of (rules)."

By doing away with the CRR, which is currently pegged at 4.75 per cent, and on which banks earn no interest, the banking system can get as much as Rs 2.6 lakh crore (Rs 2.6 trillion) lendable money.

There has been a public debate ever since Chaudhuri spoke of the need to do away with the CRR last week.

The worst criticism came from the regulator itself.