Ahead of mid-quarter review of monetary policy, the Finance Ministry on Tuesday made a case for lowering of Cash Reserve Ratio (CRR) saying it would improve credit flow and spur the economic growth.
“CRR is an issue addressed by the regulator (RBI), but as owner of banks when we have to meet Basel III requirement we will welcome CRR cut,” Department of Financial Services Secretary Mr D K Mittal said on the sidelines of meeting of heads of PSU banks with the Finance Minister here.
CRR is the portion of deposits that banks are required to keep with the central bank.
The Reserve Bank of India (RBI) in its mid-quarter review of monetary policy on June 18 is widely expected to announce steps to boost sagging economic growth, which dipped to nine-year low of 6.5 per cent in 2011-12.
Mr Mittal further said, “this (CRR cut) is monetary policy issue but you have to understand two aspects. CRR today is 4.75 per cent that is the amount of money which is deposited by the commercial banks with the RBI. I think banks have a cost, there is no money paid to them.”
There is Basel III requirement, he said, adding, “there is deposit of Rs 65 lakh crore, there is Rs 3.20 lakh crore deposit with the RBI which is interest free.”
The second side, he said, if that much money released in banking system to that extent credit flow would be available.
“What impact it would have on the inflation? If there is any (cut) would it have impact on inflation and if so what impact it would have? So, these are the two things which have to be balanced. It is in the domain of RBI to look at these issues,” he said.
“But as owner of the banks, I would certainly would like CRR to go down... as early as possible,” he said.