1. Banks’ investments in SLR securities slip in January

Banks’ investments in SLR securities slip in January

Banks’ investments in securities that qualify under the Reserve Bank of India’s (RBI) statutory liquidity ratio (SLR) window dropped from the previous fortnight for the first time in four months in January.

By: | Mumbai | Published: February 15, 2017 5:53 AM
Reserve Bank of India.(Reuters) Reserve Bank of India.(Reuters)

Banks’ investments in securities that qualify under the Reserve Bank of India’s (RBI) statutory liquidity ratio (SLR) window dropped from the previous fortnight for the first time in four months in January.

During the fortnight ended January 20, banks’ investments in SLR securities fell to Rs 35,83,020 crore from Rs 36,35,188 crore in the two weeks ended January 6, according to data released by the RBI. The last time the figure fell from the previous fortnight was during the fortnight ended September 16, when it stood at Rs 28,25,659.24 crore, from Rs 28,65,012.95 crore in the fortnight ended September 2.

The drop in SLR investments came as the short-term market stabilisation scheme (MSS) bonds issued by the RBI in the wake of demonetisation began to mature in January. Cash management bills (CMBs) issued under MSS qualify as SLR instruments, much like treasury bills of very short tenure. In order to soak up excess liquidity in the system in the aftermath of the government’s announcement to demonetise currency notes of Rs 500 and Rs 1,000, the government had in December announced an increase in the limit up to which it could issue CMBs under the MSS to R6 lakh crore, from Rs 30,000 crore earlier.

Ashutosh Khajuria, executive director and chief financial officer, Federal Bank, said, “When liquidity was to be sucked up from the system, these cash management bills (CMBs) under MSS were issued. Now they are maturing and as they mature, the investment in SLR would go down because these were all SLR instruments. No banks are selling presently as yields are too high.”

After the RBI’s February 8 credit policy, where it changed its stance to neutral from accommodative, the yield on the 10-year benchmark has risen to 6.875% from 6.431%.

The excess liquidity with banks has also begun to move out with the easing of restrictions on cash withdrawal. Most banks expect up to 40% of the deposits received as a result of demonetisation to remain within the banking system.

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