SLR cut hinges on fiscal correction push under new govt: Reserve Bank

Written by PTI | Mumbai | Updated: Apr 2 2014, 01:40am hrs
Raghuram RajanUnder the SLR requirement, the banks have to park 23 per cent of their deposits in Government securities. (Reuters)
Reserve Bank Governor Raghuram Rajan today said the process to bring down the high statutory liquidity ratio (SLR) will be taken forward if the new government moves ahead on the path of fiscal consolidation.

Under the SLR requirement, the banks have to park 23 per cent of their deposits in Government securities. This is a long way from 40 per cent SLR requirement in mid-90s. Despite the reduction, lenders still keep nearly 27 per cent of their deposits in SLR, which is a measure of their solvency.

"I think we will start on that (easing of SLR norms) process as soon as we are confident that the fiscal consolidation path will be continued by the new government," he told reporters during the customary post-policy meeting.

"For now, of course, there is some uncertainty of the shape of the next Government. So, until that is clarified it would be premature to embark on that path (easing SLR norm)."

Rajan, in his maiden media briefing on September 4, had favoured reduction in banks' requirement to invest in Government securities in a calibrated way.

"This cannot be done overnight, of course. As government finances improve, the scope for such reduction will increase. Furthermore, as the penetration of other financial institutions such as pension funds and insurance companies increases, we can reduce the need for regular commercial banks to invest in Government securities," Rajan had said.

Later, a RBI-constituted panel, headed by Nachiket Mor, had recommended abolition of SLR, saying this tool has "outlived its utility" for both banks and NBFCs.

Once it is sure that fiscal consolidation will happen, RBI can reduce the demand on the banks to hold SLR and make it more consistent with what is required from a liquidity perspective, the RBI chief said.

He said another aspect the central bank will be exploring is how change in SLR will fit with Basel liquidity norms.