RBI allows banks to classify borrowed securities as SLR

MUMBAI: Reserve Bank of India ( RBI) has allowed banks to classify government securities borrowed from the central bank in the daily liquidity adjustment facility (LAF) under the statutory liquidity ratio ( SLR), making liquidity management for banks easier.

Banks have to currently invest 20.75% of their deposits into government securities which is called SLR. However, such securities borrowed from the central bank under the daily LAF were not counted as SLR.

Bankers said that the move will make liquidity management for banks simpler. “This means that banks can now choose not to buy excess securities if they think rates are going to fall and rather borrow it from the RBI. Banks which see a temporary surge in their deposits could also use this facility,” said Harihar Krishnamoorthy, treasurer at FirstRand Bank.

Banks have to also maintain 10% of their SLR requirements in high quality liquid assets which include government securities, cash and some highly rated debt, under the Basel III regime which will fully kick in by April 2019. With borrowed SLR securities also being considered as SLR this burden on banks will also lessen.

“This gives banks some head room and makes liquidity management more flexible,” said Ashish Parthasarthy, treasurer at HDFC Bank.