"Our medium term objective is to bring down the cash reserve ratio (CRR) to three per cent but burgeoning money supply, exchange rate uncertainty and growing fiscal deficit have considerably reduced RBI's flexibility on the issue," RBI deputy governor Y V Reddy said here.

Financial sector reforms have improved the banking services, and savings in the economy continued to grow, Reddy said at a seminar ``Competing in future for banking and financial services'' organised by Tata Consultancy Services.

He said there was considerable debate within the RBI top brass whether to deregulate interest rates on savings account. "We are still debating the issue and are not sure how we should move," Reddy said adding the apex bank would, however, continue to regulate deposits of non-resident Indians to keep the short termliabilities low.

On prudential norms, Reddy said currently banks were not making provision for income on asset not received for a period of six months and this needs to be aligned to international practice of 90 days.

Reddy said RBI would come out with a report on universal banking in a few weeks time. A committee headed by former IDBI chairman S H Khan has already submitted its recommendations on univeral banking and the apex bank's report is expected to formulate a framework for its implementation, he said.

Reddy expressed concern over the consequences of tightening prudential norms and pressure on banks to reduce non-performing assets (NPA) "without strengthening debt recovery systems" and said this resulted in the choking of credit.

On competition among banks, he said RBI could only provide an enabling environment and incentive framework and it was for the banks to take the cue and foster competition. "Competition is sought to be fostered in rural and semi-urban areas by encouraging local areabanks and widening of ownership in select PSU banks has helped the process of autonomy," he said.

He said RBI's efforts to enhance competition does take into account the response of PSU banks and their principal shareholder, which is the government.