Incremental relief on CRR/SLR not very material: SBI

Post the Reserve Bank measures on Wednesday to stem rupee’s fall, Pratip Chaudhuri, chairman, State Bank of India, says the RBI took a long time to raise FCNRB rates and will have to wait and see how much money will come in.

He further adds, the incremental relief on CRR and SLR is not very material.
Chaudhuri says RBI reducing an individual's forex limit to USD 75,000 from current USD 2,00,000 will help moderate outflows. He says buying realty abroad should not be a priority.
He says RBI has kept a window saying that those who want to do big time acquisitions, would be approved on a case-to-case basis. He further adds companies can still leverage their balance sheet in India and give guarantees worth three-four times. Below is the verbatim transcript of Pratip Chaudhuri’s interview on CNBC-TV18 Q: What is your sense about both those steps, the fact that you can pay much more on the Foreign Currency Non-Resident (Bank) (FCNRB) accounts and secondly even in the FCNR and non-resident Indian (NRI) accounts, you don’t have to keep statutory liquidity ratio (SLR)/ cash reserve ratio (CRR) and loans given against them will not have to be adjusted for priority sector lending. How much can you increase interest rates on all these products and how much more money do you think we can get?
A: On the rupee and FCNRB, these are only projections. We have to wait and see how much money comes in and I think Reserve Bank of India (RBI) raised the rupee rates to 8 percent, they took a long time to raise the FCNB rates. So by the time the rupee rates were raised to 8-9 percent, some people had even 9 percent rates because the difference between the domestic rates and the NRI rates will be done away with. So that is why we are seeing relatively slow dollar flow.
I think now dollar flows have accelerated on the back of the increase in the treasury rates in US. So they would continue at a reasonable pace but incremental relief on CRR/SLR to my mind is not very material. Had the relief been given on entire corpus then it would have been more effective. Q: How much do you think you can attract dollars in these FCNR and NRI accounts because of the relief given, can you raise it by 1 percentage point, half a percentage point and therefore in your own case, how much do you think funds can increase by, do you see a 10 percent increase in your accounts over there, 5 percent increase?
A: That has to be seen. To my mind, it would come largely from the Middle East because in the US and other the interest rates on the local deposits are even competing with the FCNB deposits. So that we will have to see as we go along. Also, we cannot mindlessly keep increasing the FCNB rates because FCNB rates today already are at LIBOR plus 300 and we are having difficulty in locating borrowers because if I borrow at LIBOR plus 300 I have to on lend at LIBOR plus 350-400. So we are having a difficulty in getting borrowers who would borrow at those kind of rates. Q: At LIBOR plus 300, are you competitive with US rates or are you less than that?
A: Just about competitive. Q: So at 400 you would be more competitive?
A: Yes, but 400 if you bring in money, where would you lend? There are not enough borrowers at 450-500. Q: Give us your point on the other measures as well about lowering of overseas remittances, banning of investments in overseas properties, do you think that will in anyway help moderate outflows, something that the RBI is looking to achieve?
A: Yes. I think that would help moderate outflows because buying realty abroad was never a priority. RBI has kept a window saying that those who want to do big time acquisitions, these should be approved on a case-to-case basis.
So if a Tata Jaguar-LandRover (JLR), Corus or the Adani Port acquisition or something like this were to happen, I think RBI would see and approve it under the approval route.
Also, what has been stopped is the investment itself but the companies can still leverage their balance sheet in India and give guarantees worth three-four times. So suppose, a strong Indian company is doing an acquisition abroad, even without sending capital or sending capital to a huge extent, they can leverage their balance sheet here and give a guarantee based on which funds can be raised overseas.