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Bankers meet Reddy, discuss tight liquidity

Our Bureau

No talk on CRR cut

Bankers' feedback
Call for subsidy on farm lending
Ways to make deposits more attractive
Credit growth exponential

Mumbai , March 28

Hiking the interest rate ceiling on FCNR deposits, raising capital overseas through hybrid instruments, making bank deposits more attractive, amending the guidelines on securitisation and managing the current liquidity crunch were among the issues discussed by bankers at their meeting with the Reserve Bank of India Governor, Dr Y.V. Reddy, on Tuesday, ahead of the ensuing credit policy.

Mr A.K. Purwar, Chairman, State Bank of India, who was among those who called on Dr Reddy, said the bankers discussed issues related to the growing credit demand and means of raising resources.

"Resource remains an issue because credit growth is huge. Incremental credit deposit ratio is in excess of 100 per cent," Mr Purwar told reporters at the RBI headquarters.

The RBI officials were understood to be of the view that the current tightness in liquidity is manageable without an immediate reduction in Cash Reserve Ratio.

"It was a meeting to get feedback from banks. We discussed issues related to interest rates and liquidity," said Mr H.N. Sinor, CEO, Indian Banks' Association. Mr Sinor said liquidity management is a prerogative of the RBI and it takes adequate measures as and when there is tightness in liquidity. A likely cut in the Cash Reserve Ratio (CRR), as a means to ease liquidity, was not discussed at the meeting, he said.

The three options before RBI to ease liquidity include unwinding of securities under the Market Stabilisation Scheme, a cut in the CRR and deregulating the interest rates on NRI deposits, said Mr Sinor.

Dampner on markets

The news reports that a cut in CRR was not discussed at the meeting dampened the sentiments in the bond market and prices fell marginally. Bond dealers were expecting some announcement in this regard after the Finance Minister said last week that RBI would come up with an action plan by the month-end to improve liquidity in the banking system.

A section of bankers believe that a cut in CRR is likely because it is also one step closer towards complete capital account convertibility.

Deposit mobilisation

Apart from liquidity, bankers also discussed mobilisation of deposits. There has been a shift in the mix of deposits from retail and current account deposits to bulk deposits. Mutual funds too have become more competitive as compared to retail deposits. "We discussed how to make deposits more attractive," Mr Sinor said. The bankers, it is understood, insisted on subsidy for providing farm credit at 7 per cent as announced by the Finance Minister.

The other bank chiefs who attended the meeting were Mr V.P. Shetty, Chairman and Managing Director, IDBI Ltd, Mr Sanjay Nayar, CEO, India, Citi Group and Mr K.V. Kamath, Managing Director and CEO, ICICI Bank.

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