RBI allows banks to bring down SLR to 20.50 pc 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 per cent to 20.50 per cent by January 2017.

The move is expected to unlock funds for lending.

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

SLR was reduced to 21.50 per cent of net demand and time liabilities (NDTL), or total deposits, with effect from February 7, 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 per cent with effect from the fortnight beginning January 9, 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 per cent 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.