RBI unlikely to hike SLR soon on inflation worries
By TNN |
Highlights
NEW DELHI: The Reserve Bank of India (RBI) is unlikey to tweak the statutory liquidity ratio (SLR) for banks despite it might be empowered to fix the SLR floor through the new ordinance. The President is expected to approve the proposed ordinance before the quarterly review of RBI���s credit policy slated to be held on January 31.
The finance ministry has said that the ordinance amending the floor of SLR is likely to be brought in before the end of this month when the RBI���s credit policy is slated, or latest by early February. Sources said that the credit policy is independent of the amendment to the SLR floor and will not impact the policy immediately. The amendment empowers RBI to lower SLR ��� the mandatory deposits that banks have to park in government bonds, which is pegged at 25%.
Sources said that it was unlikely that RBI will reduce SLR immediately, considering it is worried about inflationary pressures and a scorching credit growth. It is likely that the RBI might refrain from injecting liquidity into the system, a banker said. Even a 1% reduction in the SLR would release Rs 25,000 crore into the system.
���It could issued likely by this month end or latest by February 3,��� a finance ministry official said. The ordinance will be sent to the President for approval shortly. ���It might not have any bearing on RBI���s credit policy. It is not necessary that the central bank will factor in the SLR amendment now. RBI has the flexibility to lower the floor of SLR. We operate on the arms length principal, these are independent events,��� he added. The ordinance was brought in to give greater operational flexibility to the central bank.
The timing of promulgation of the ordinance coincides with RBI���s quarterly monetary and credit review on January 31. Sources said an ordinance could only be promulgated before the President summons Parliament, which is generally 21 days before the session. If the session begins on February 23, as is expected, then the President is expected to summon the houses by February two, in which case the ordinance could not be issued after February one.
ADVERTISEMENT
���While bond prices are climbing up and yields are going down, this has made investments for banks in government bonds unattractive. Curtailed by a reduction in the government borrowing programme, the issuances for government securities are coming down. The RBI could lower the floor in such a situation,��� a senior government official said.It is perceived that the government has brought in the ordinance in order to make available disposable resources for the banks. With a hike in cash reserve ratio (CRR) by 50 basis points to 5.5%, Rs 13,500 crore has been sucked out of the system.
Last week, the Cabinet approved the proposal to bring this ordinance to amend the SLR floor. The SLR mandate for banks says that they must keep a stipulated proportion of their total demand and time liabilities, meaning deposits, in the form of liquid assets, namely, cash, gold and approved securities, mostly government securities.
Minister of state for finance PK Bansal said on Wednesday a Bill to amend the Banking Regulation Act is expected to be tabled in the Budget session. The Bill would also contain provision lifting the 10% cap on voting rights of foreign banks in private sector banks, he said at a seminar on micro-finance organised by Sadhan.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
