In the late eighties, the PSU banks were getting primed for global display. NPA provisioning was a function of available profits and more ignored than not. Slowly, the view of the mandarins in the banking turned to cleaning the Aegean stables.
Huge write-offs and massive doses of capital infusion followed. At that point, the realisation dawned that the problems were mitigated by the high levels of SLR and CRR that were imposed on the banking system, which actually stopped the banks from frittering away all of the depositors money.
The Era of liberalisation saw experts asking for lowering in the reserve requirements, to enable banks to lend more and have freedom over the resources.
This process started gradually, with RBI being reluctant to let go.
The important thing to note here is that the skill sets of the PSU Banks have not changed at all. It still continues to be at the whims and mercies of the government of India. Nothing has changed. PSU Banks still do not attract any serious talent.
A look at the banks like HDFC or Axis or Yes Bank and you will know the differences. PSU Banks, with their rotten pay scales in relation to the private banks, will force poor talent that will feed itself on corruption and nothing else.
The higher the lending, there will be exponential increase in NPAs for the PSU.
In this context, the demand of the gentleman from SBI to do away with CRR is ridiculous. By now we all know that even if a peon of the SBI were to be made the CMD, the performance of the bank would not differ by a single paise.
If the RBI wants to reduce reserve requirements, caution is advised. First change the pay scale system, get good talent and good skill sets. Then give them freedom. Dont let a driver of an Ambassador get in to the cockpit of a Boeing.