For Quick Alerts
For Daily Alerts

RBI Against Broad-Basing CRR to Include Forex, Gold

By Super

New Delhi, Jan 13 (PTI) The RBI is against broad-basing CRR, the portion of total bank deposits kept with the Reserve Bank, to include forex and gold reserves as it would entail an additional burden on the lenders.

The Cash Reserve Ratio (CRR) is currently at 4 per cent and a study by Prof Errol D'Souza has proposed a Gold Monetisation Scheme, under which forex and gold reserves could be allowed as CRR up to 30 per cent of the requirement.

RBI Against Broad-Basing CRR to Include Forex, Gold

Sources said the RBI has opined that as the CRR is maintained in domestic currency, it would entail additional cost on part of banks to maintain gold and forex as their valuations keep on changing and would require monitoring on a frequent basis by banks.

"The proposal is counter intuitive. In case of capital inflows, the banks may be asked to keep forex and gold as CRR. Assuming constant inflows, the value of rupee against dollar is likely to rise.

Hence, the value of stock of forex and gold kept as CRR, will diminish with rising rupee," these were the further logic given by the RBI, according to sources.

They said that the study recognise the role of foreign currency or gold for maintaining CRR as part of the RBI's liquidity tightening moves to check volatility in the foreign exchange market.

However, the central bank is of the view that the impact of maintenance of CRR in foreign currency with the central bank may have a desired policy impact on the credit market, while it is not clear how the same policy impact on domestic liquidity can be achieved by prescribing CRR to be maintained in form of gold.

The RBI also said in case it allows gold for required reserve under CRR, the study needs to explain the transmission mechanism on domestic liquidity and hence credit market.


The Finance Ministry had sent a report submitted by Prof D'Souza, faculty of IIM-Ahmedabad, for consideration to the Reserve Bank, which was rejected by the central bank on various grounds. India imported 845 tonnes of gold in 2012-13.


Read more about: crr gold forex
Company Search
We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Goodreturns sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Goodreturns website. However, you can change your cookie settings at any time. Learn more