Tuesday, August 28, 2012

SBI chief gets taste of RBI's tongue-lashing

Chennai, Aug 27: His predecessor, O P Bhatt, had spent the better part of his five-year tenure in a bitter war of words with the Reserve Bank of India over teaser home loans and sundry other things. State Bank of India Chairman Pratip Chaudhuri obviously didn’t want that to continue — so his first public statement after taking over in April last year focused on why SBI should not get into a state of perpetual conflict with the regulator.
Chaudhuri’s best efforts apparently have not been enough to soothe the RBI’s nerves and to stop it from seeing SBI as a problem child. A week after he suggested the abolition of the cash reserve ratio (CRR) — the proportion of deposits banks need to park with the regulator — RBI Deputy Governor K C Chakrabarty bluntly said on Monday — Chaudhuri “has to find some other place” if he could not work as per the central bank’s regulatory environment.
Chakrabarty was responding to a question from the audience at a conference on systemic risk here. The tongue-lashing took many by surprise, as it was probably the first time that a top RBI official resorted to such a public reprimand for the chairman of the country’s largest bank. Chaudhuri had said keeping the CRR balance with the RBI was costing the banking system Rs 21,000 crore. He had questioned why the CRR was not applied to insurance companies, non-banking financial companies and mutual funds, which were also mobilising public deposits. “CRR doesn't help anybody and it is unfairly put on the banks,” Chaudhuri had said.
While the RBI used to pay interest on CRR funds, that was withdrawn a few years back. Interestingly, SBI has reduced the lending rate on some segments such as retail and small and medium enterprises and said the reduction was due to a cut in the CRR and not due to a policy rate or repo rate cut. The RBI had reduced the repo rate in April by 50 bps to eight per cent.
Meanwhile, to another query as to “which banking tree needed to be protected”, Chakrabarty, drawing a forest fire analogy, said: “Obviously, it is SBI. It is too big a tree. If you fail to protect the SBI tree, it (the fire) may spread to other banks and it will turn out to be a systemic failure.”


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