Do they know what they are saying?

In August 2012 Pratip Chaudhuri, Chairman of the State Bank of India demanded that the Cash Reserve Ratio should be scrapped. This is the money that banks are required to deposit with the Reserve Bank as a safety measure to guard against sudden demand for money. All central banks enforce such safeguards and it was lax vigilance on the part of the Federal Reserve that precipitated the sub-prime crisis and the demise of Lehman Brothers. CRR is also used by the RBI to decrease liquidity in banks in its efforts to control inflation. However under pressure from the Congress the RBI has been reducing the CRR even though the Consumer Price Index has stayed above 9% since 2010. In January it was reduced to 4% from 4.25%. Maybe Mr Chaudhuri was caught between Congress pressure to lend more in a futile effort to increase growth and the need to hedge against rising Non Performing Assets, as bad loans are called. Things have become much worse since last year as years of uncontrolled inflation has led to a sudden drop in the rupee. The RBI is now desperate to prevent any further falls because imports, especially oil, will become much more expensive, adding to inflation and decreasing growth. Already various agencies such as the IMF is predicting lower growth rates and there are warnings of a credit downgrade to junk status if the rupee falls further. If that happens it will be bye bye Congress in next year's general elections and the Congress will do anything, including selling all our gold, to stay in power. The RBI also enforces a Statutory Liquidity Ratio which a bank has to hold, again for safety. This consists of cash, gold or securities, such as company bonds or shares, approved by the RBI. The SLR has a maximum upper limit of 40% and a lower limit of 23%. It is at 23% now. With such a lot of reserves one would imagine that our banks are the safest in the world and able to cope with any demand, however large it maybe. Not so. Seems that the State Bank itself will need an additional Rs 2.3 trillion by 2018 to meet Basel 3 norms which were enacted after the crisis of 2008. " We need about Rs 2.3 trillion of additional capital for Basel 3 up to 2018. Out of this Rs 1.5 trillion is of Tier-1 and the rest Rs 800 billion in Tier-II capital," said SBI MD and Chief Financial Officer of SBI, Diwakar Gupta. According to the RBI the banking system will Rs 5 trillion to implement Basel 3. Livemint, 22 July. Bond risks for the SBI have jumped by 86 points to 275, the highest since October 2008. " The rupee's rout could be a further drag on lenders' asset quality," said Vibha Batra, of ICRA Ltd. Do they really knnow what they are talking about?