Mumbai, Jan 12:  Amidst liquidity squeeze and a higher-than-expected credit offtake, bankers on Tuesday requested the Reserve Bank of India (RBI) to slash cash reserve ratio (CRR), the mandatory cash balance that they park with the central bank, and the statutory liquidity ratio (SLR), besides keeping the key policy rates unchanged.
 This call comes even as both the RBI as well as the government are fighting high inflation driven by a massive jump in vegetable prices since mid-December with unseasonal rains affecting crops.
 After the customary pre-policy meet with the central bank, Indian Banks Association chief executive R Ramakrishnan said that bankers, led by State Bank of India, ICICI Bank, HDFC Bank, Bank of Baroda and Union Bank of India, among others, demanded reduction in both the CRR and the SLR to tide over the tight liquidity situation as well as the poor deposit growth as the credit offtake is growing above the industry's as well as RBI's own estimates.
 "We requested RBI to slash both the CRR as well as the SLR (amount of prudential reserves that banks keep in the form of government securities, bonds etc) even though we admit that inflation is a big concern. We see inflation at 7 per cent by the end of the fiscal. However, this is 50 bps above RBI estimates for this fiscal," Ramakrishnan said.
 At present, the CRR stands at 6 per cent while SLR is pegged at 24 per cent. Since October, RBI temporarily brought down the SLR by 100 bps to ease the liquidity situation and on December 16, at its mid-quarter review fixed this at 24 per cent as permanent measure to ease the liquidity pressure in the system.
 From October onwards, banks have been borrowing over Rs. 1 trillion from RBI everyday on an average. The central banks key policy rates of repo and reverse repo stand at 6.25 and 5.25 per cent respectively. After falling for two months, food inflation started going up since mid-December and for the week ended December 25, it jumped to 18.32 per cent due to an abnormal rise in prices of food items like onions, milk and meat.
 Though headline inflation for November stood at 8.48 per cent, given the very high food inflation and the recent Rs. 3 a litre petrol price hike, December numbers may be a tad higher than the previous month.
 Ramakrishanan further said, the poor deposit growth is a matter of concern for banks. Despite an increase in deposit rates, the banks have been unable to attract money from the public for quite some time now, even as they have been witnessing an good spike in fund demand.
 "We see the credit growth touching 22-23 per cent by the end of the fiscal," Ramakrishnan said. On the lingering crisis in the microfinance industry, he said they have requested RBI to write to Andhra Pradesh so that loan recovery process can resume.
 Microfinance industry has been reeling under an existential crisis following the Andhra Pradesh Ordinance to regulate the wayward ways of their recovery agents in October.
 The AP move necessitated by the spate of suicides by poor borrowers was alleged to have been precipitated by the strong-arm method of the MFI recovery agents. According to Andhra government officials, about 30 persons reported to have committed suicide in the state during September-October last year due to harassment by microfinance companies.
 Following this Ordinance and the resultant crisis, RBI set up a panel headed by noted chartered accountant YH Malegham to suggest ways to regulate this sunshine sector. The report is expected next month.

Lastupdate on : Wed, 12 Jan 2011 21:30:00 Makkah time
Lastupdate on : Wed, 12 Jan 2011 18:30:00 GMT
Lastupdate on : Thu, 13 Jan 2011 00:00:00 IST