Reserve Bank of India Plans

1.RBI plans to reduce banks’ requirement of investing in g-secs in calibrated manner

i. The Reserve Bank of India (RBI) is planning to reduce banks’ requirement of investing in government securities (G-Secs) in a calibrated way. This will help to ensure the flow of credit to productive sectors of the economy.

ii. One of the mandates for the Reserve Bank in the RBI Act is ensuring the flow of credit to productive sectors of the economy. In this context, it is necessary to reduce banks’ requirements of investing in g-secs in a calibrated way, to what is strictly needed from a prudential perspective.

iii. It is recognised that the scope for such reduction will increase as government finances improve. Further, as the penetration of other financial institutions, such as pension funds and insurance companies increases, it will be possible to reduce the need for commercial banks to invest in g-secs,” said RBI in the Trend and Progress of Banking in India 2012-13.

iv. The Statutory Liquidity Ratio (SLR), the portion of total deposits banks are required to park in g-secs is currently at 24.5%. v. “Current regulations require banks to bring down their SLR securities in Held To Maturity (HTM) category from 25% to 23% of their Net Demand and Time Liabilities (NDTL) in a progressive manner in a prescribed time frame.

vi. The requirement stood at 24.5% as at end June 2013. It has now been decided to relax this requirement by allowing banks to retain SLR holdings in HTM category at 24.5% until further instructions,” RBI said in August.

vii. Experts see the reduction in banks’ requirement of investing in g-secs gradually so that the government borrowing programme is not hampered. “The only way to do this is to do it in a calibrated manner over a period of time.

viii. According to few experts the further reduction of banks’ requirement in g-secs seems more likely when the Foreign Institutional Investors (FII) limit for investing in g-secs is enhanced. “ To be Basel III compliant RBI would want to reduce the SLR portion.