This refers to your editorial for
freedom for cash( Business line( April,22.2013).Your observation that RBI has
more methods of managing liquidity in the system than resorting to tools of
financial repression cannot hold good as far the liquidity problems of banks in India are
concerned. If at all banks face any liquidity crunch, it is their own making
and RBI cannot be expected to come to their rescue ignoring its monetary policy
stand. Banks in India face liquidity crunch because of poor mobilization of
deposits thanks to poor customer service, high inflation, reluctance to encash
financial inclusion as a business opportunity, high level of NPAs, convenience
of doing business with borrowed funds without caring for cost of funds,
mismatch between short term assets and short term liabilities.
The way banks function now with
78 % CD ratio when there is not much of demand for fresh credit is something
indicative of some serious deficiency in asset –liability management which
needs to be thoroughly probed. The NPA deposit ratio needs to be analysed in
detail. The banking system has been having liquidity problem for quite some
time and the solution for that cannot be expected to come from RBI and that too
bringing down the CRR which is already low.
Dr.T.V.Gopalakrishnan
(This comment given to Business Line in response to their Editorial Freedom for Cash dated 22/4/13).
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