RBI allows banks to bring down SLR to 20.5% by March 2017

The gradual reduction in SLR reduces the risk of large government borrowings crowding out the private sector investments over the long term, analysts said.

hidden December 10, 2015 22:29:07 IST
RBI allows banks to bring down SLR to 20.5% by March 2017

Mumbai: The Reserve Bank today permitted banks to bring down the statutory liquidity ratio (SLR) securities under held-to-maturity (HTM) category by 1.25 percent to 20.50 percent by January 2017.

The move is expected to unlock funds for lending.

RBI allows banks to bring down SLR to 205 by March 2017

The RBI logo. Reuters

SLR is the portion of deposit to be mandatorily invested in government securities.

SLR was reduced to 21.50 percent of net demand and time liabilities (NDTL), or total deposits, with effect from 7 February 2015.

To align them, it has been decided to bring down the ceiling on SLR securities under HTM to 21.50 per cent from 22 percent with effect from the fortnight beginning 9 January 2016.

"Further, as announced in the fourth bi-monthly monetary policy statement, 2015-16, on September 29, 2015, it has been
decided to progressively bring down SLR by 0.25 per cent every quarter till March 31, 2017 and concurrently reduce ceiling on SLR holdings under HTM in alignment with the SLR requirement," RBI said in a statement.

The gradual reduction in SLR reduces the risk of large government borrowings crowding out the private sector investments over the long term, analysts said.

Banks are permitted to hold investments under the HTM category in excess of the limit of 25 per cent of their total investments, provided the excess comprises only SLR securities and the total SLR securities held under the HTM category are
not more than 22 percent of total deposits.

SLR cuts will mean banks will have more money in hand for lending and the cut in HTM would mean banks have to mark to market more securities that they hold.

PTI

Updated Date:

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