ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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BANKING-Blinkered View

Blinkered View (By a Special Correspondent) THE Chairman of the Indian Banks' Association (IBA) has, in his speech at the Association's 37th Annual General Meeting, touched on diverse aspects of developments affecting the banking industry. 1988 was yet another year in which growth of bank deposits (Rs 9,200 crore) was far in excess of credit expansion (Rs 5,500 crore). The banking industry, which was flush with funds in the first half of the year, faced a liquidity problem in the second half, despite higher deposit accretion and low credit offtake. This, the IBA chairman points out, was because an amount of Rs 2,200 crore or 20 per cent of the bank's resources was impounded by the Reserve Bank through changes in the average and incremental Cash Reserve Ratio (CRR). The ORR has beamie the most unsparingly used monetary control weapon. The IBA chairman is critical of this develop- meni and advances three arguments against the ORR. First, frequent recourse to the CRR affects all banks and is inequitous in as much as the liquidity position varies from bunk to bank. Second, since bank credit can be channelled in desired directions or kept away from sectors where inflationary pressures arc strong it should be necessary to use a device like CRR only sparingly. Finally, the CRR entails a high cost to the banks.

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