Business   

Move to amend banking law opposed

Staff Reporter

KOCHI: All India Bank Employees' Association has opposed the proposed ordinance to amend Section 24 of Banking Regulations Act, 1949.

At present, the Act provides that in addition to maintaining the required cash balance with the Reserve Bank of India as Cash Reserve Ratio (CRR), all banks have to maintain a minimum of 25 per cent of their deposits as Statutory Liquidity Ratio (SLR) in the form of cash, gold or approved government bonds.

This stipulation has been made in law recognising the sound banking practice that a bank should keep a reserve of cash and liquid assets to meet its demand liabilities, a statement issued by Association general secretary C.H. Venkatachalam said.

One of the deficiencies or weaknesses observed in Indian banking scenario has been the tendency to overtrade at the expense of liquidity. Hence this legal stipulation has been made so that banks maintain a reasonable portion of their assets in liquidity to meet any contingent demand on their liabilities.

Out of every Rs.100 collected from people as deposits, the banks have to maintain Rs.5 as CRR and a minimum of Rs.25 as SLR and only the balance of Rs.70 is available for lending. This is a well-meant and well-designed cover for the banks to meet their urgent liabilities.

Now, by the proposed ordinance, the RBI can reduce the SLR limit at their discretion. The objective is to increase the amount available for lending and to meet the expanding credit needs.

The adverse impact would be that the banks would be tempted to uncover themselves with lesser SLR and lend more money as loans, increasing their risks.

The additional amount that would be available for lending might go more towards financing stock market operations, speculative business and real estate business.

This would discourage banks from mobilising more deposits to find resources for lending and go for this shortcut method of reducing their liquid assets to increase their advances and loans, the statement said.

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

A significant FDI with long-term benefits
Sec. 54EC should be brought back to life
Changing bonus concepts of Life Insurance Corporation
Software to aid VAT compliance
Presented Bhatla award
Move to amend banking law opposed
Air Sahara cuts fares
Seven cruise ships to call at Kochi this month
Vanaja Textiles headed for closure

Copyright © 2007, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu