Treat gold deposits as part of cash reserve ratio: SBI

The country's two biggest state-run lenders on Saturday pitched for treating a portion of their gold deposits as part of the mandatory cash reserve ratio (CRR) or statutory liquidity ratio (SLR), both of which banks consider as non-productive.

"Is it possible that the regulator can treat a little bit of our gold deposits as CRR or SLR? After all, gold is also a store of value," State Bank of India Chairperson Arundhati Bhattacharya said at a Gem & Jewellery Export Promotion Council banking summit in Mumbai.

With gold imports having pressurised the current account gap in the recent past, there is a greater need to make use of gold available in the country and make it more liquid, she stressed.

She claimed that SBI is the largest player in the gold deposit scheme segment and is struggling to deploy the entire deposits in productive assets.

"We also find that we are not able to deploy the entire gold that we get. There is really no incentive for us to go ahead and get more of these deposits now so as to make gold more liquid," she said, reiterating her demand.

CRR, at 4 per cent now, is the portion of deposits parked by banks with the Reserve Bank of India that earns no interest, while SLR, at 22.5 per cent, is the amount of deposits to be mandatorily invested in recognised securities such as government bonds and other liquid assets.

However, the average SLR holding in the system is 27 per cent as banks make treasury play a source of boosting bottom lines when there is poor growth in advances or bad loans rise.

Concurring with Bhattacharya, Bank of Baroda Chairman and Managing Director S S Mundra said it "makes sense" to treat a part of banks' gold deposits as CRR and SLR.

"When banks are holding gold, it is of value. I think it makes sense to bring under CRR/SLR. It also fits the larger pattern that ultimately we are talking about unearthing the gold and bringing it to productive sectors in the economy as a whole. The gold that is readily available can be brought under recognition," Mundra said.

Data on the gold deposits held by the two banks was not immediately available.

Successive chiefs of SBI, the country's largest lender, have been targeting the zero-interest yielding CRR component. Bhattacharya's predecessor Pratip Chaudhuri had waged a spirited public fight to abolish CRR.

Speaking at the event, Financial Services Secretary GS Sandhu acknowledged that the ministry has received several representations on ways to better utilise gold deposits and it is actively looking into the matter.

He stressed the need to monetise gold held by the public to help reduce imports of the yellow metal, which can be a drain on the nation's foreign-exchange resources and lead to a wider current account deficit (CAD).

Curbs on gold imports helped narrow the CAD to 1.7 per cent of GDP at USD 32.4 billion in 2013-14 from 4.7 per cent at $87.8 billion in 2012-13.

"So much gold is lying idle. In some ways if we can monetise this, may be our imports will come down drastically. Something in that direction we will have to think of," Sandhu said.