Jaleswar, 6 May-2014, Abhijit Saha: Nine Lakh rupees have been looted today from the Gramya Bank…
Mumbai: The Reserve Bank of India (RBI) has called for a meeting of bank treasury heads on Tuesday to discuss issues relating to the tight cash situation in money markets. The RBI governor and all four deputy governors will meet banks to understand the difficulties in the market.
This follows banks’ demand for a cut in the cash reserve ratio (CRR) to ease the tightness in the market. CRR is the portion of deposits that banks have to keep as a reserve requirement with the central bank.
Government spending is also on a standstill to meet the fiscal deficit target. The government cash balance with the RBI is Rs 1.4 lakh crore. This is also accentuating the cash in the banking system, making it difficult for them to lend to borrowers and grow their balance-sheet in the crucial fourth quarter.
The high provisions that banks will continue to undertake in the fourth quarter for their weak assets as part of the cleaning up exercise initiated by the RBI will further worsen the situation. A senior banker said, “If the credit growth continues to be sluggish in the fourth quarter, then many government banks will be forced to report losses in the next year also.”
Banks are expected to set aside huge capital for bad loans in the fourth quarter also that will end on March 31, 2016. Banking system is borrowing on an average of Rs 1.3 lakh to 1.4 lakh crore from the Reserve Bank of India by pledging government bonds, which is expected to expand as the demand for credit surges. From January 1, 2016, RBI had made it mandatory for banks to keep a liquidity coverage ratio (LCR) of 70% from the earlier 60% as part of the requirements under Basel III.
Liquidity coverage ratio (LCR) is the portion of the net cash outflows during the next month for a bank.
RBI said in its February 2 policy document, “Liquidity conditions tightened in the second half of December with advance tax outflows. Tightness spilled over into January 2016 on the back of a seasonal pick-up in demand for currency, restrained spending by the government and a pick-up in bank credit growth, in relation to deposit mobilisation.”