definition of statutory instruments and its effect on profitability of banking sector
Many time the statutory instruments are the tools in the hand of Government used for financial inclusions or to protect interests of the account holders. This may negatively cause the banking performance.
My opinion is that statutory instruments are instruments of monetary policies mostly put in place by central banks of different countries or trade bloc to achieve macro economic objectives. Examples of statutory instruments are cash reserve ratio, minimum lending rate, special deposit, open market operation, funding , just to list a few. When the central bank (government) increases or reduces these statutory instruments, it affect profitability of financial institutions positively or negatively. Trade off always occurs between profitability and liquidity when government regulate these instruments.
In my opinion, statutory tools are the policies or methods applied by the RBI to control and direct the Banking system in the economy, i.e., CRR, repo Rate, SLR, minimum lending rates, etc.
This tools were very important in the Economy, as it is directly affecting the money supply in the Economy which is intermediated by Banks. If banks are not performing well, then RBI can take such statutory measures by changing the flow of money in the economy and convert the non performing ones.
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