The New Nation - Internet Edition

TWENTY-FIVE out of 48 banks have defaulted in their cash reserve ratio (CRR). Among the defaulting institutions some are Nationalised Commercial Banks (NCBs). Banks need to keep 18 per cent of their total deposits with the central bank, and invest the rest 82 per cent in the market. The central bank allows commercial banks to fulfil upto 13 per cent of CRR with bonds, debentures, and the like. Rest 5 per cent needs to be fulfilled by hard cash. Despite that more than half of the banks, both private and nationalised banks, have become defaulters in fulfilling their CRR.

The central bank has provision to take punitive measures against CRR default. For 15 days defaulting banks are fined 10 per cent on the defaulting amount. For 21 days or more higher fine is to be imposed even on bank directors. Even then why so many banks have become defeaulters on account of CRR is not easy to understand.

CRR shortage is not new, in the past on several occasions it was noticed. The central bank in the past was hardly able to handle the situation effectively with the firm assurance from the banks that such default would not occur in future. This time also widespread CRR shortage hints that the central bank did not take measures in time.

People conversant with fiscal and monetary policies say that it is not the laxity of the central bank alone that has led to CRR shortage. It could be due to outside interference in the affairs of the central bank, that is, influence by the government to show lenience to some of the banks. Interference in normal monetary and fiscal policies and cheap appeasement of powerful quarters may give rise to a serious situation which could be difficult to repair. We, therefore, would caution the government and the central bank to be fully alert.