SLR, Fiscal Discipline and Banks

Gopalakrishnan (Fort Worth, Texas)

This refers to your editorial on SLR reduction and Govt's fiscal discipline. The reduction of SLR is ideal provided the banking system is otherwise sound and the Govt is prudent in its fiscal management. If reduction in SLR is permitted,the banks exposure to credit will expand and consequently, it will have to provide additional capital to meet the capital adequacy standards, provide more towards provision for bad debts and find good demand for credit expansion which is not there due to high interest rate, high inflation,lack of congenial atmosphere / comfort level for investment by the private sector etc. No doubt, the need for reduction in SLR is justifiable to discipline the Government's fiscal management and dependence on dependable bank finance, will it be possible in India taking into consideration poor professionalism in banking, compulsions to finance weaker sections of society, lack of discipline among borrowers to conduct their operations with banks and public money etc is a million dollar question ? How far RBI's autonomy if at all if it is there, can permit it to run the banking system the way it wants? is another issue to be debated in the matter.

( This appeared in ET E Paper dt 10/09/11)