RBI to ease up the current norms for the banks to lend
August 23, 2015: Reserve Bank Of India (RBI) has promised to change the rules to free up capital that will allow banks to lend more money. In the response to SBI Chief, RBI is thinking to change the provisions that regulate capital adequacy and liquid coverage ratio.
The chairman of SBI Arundhati Bhattacharya indicated that banks are left with very little liquidity to lend after credit pickups due to these current ratios. She pointed that because of high pre-emptions like – cash reserve ratio, statutory liquid ratio, liquidity coverage ratio and priority sector loans, there is only Rs.40 left to lend out Rs.100 with the banks.
Banks have to keep 4 per cent of their total deposits as CRR with the Reserve Bank Of India. Investment in government securities includes 21.5 percent as SLR, while, banks are bounded to have 60 per cent LCR. Banks also have to lend 40 per cent farmers, students, and small businessmen as loans on the priority.
RBI chief Raghuram Rajan said."In a long run, we have to bring them down but we can't do it overnight, SLR has come down slowly but we also need a buyer for government securities to emerge".