RRBs Get A Breather Over SLR Guidelines

Mumbai, October 29: | Updated: Oct 30 2002, 05:30am hrs
The Reserve Bank of India (RBI) has relaxed the time stipulation of end-March 2003 for adhering to the new norms of converting all statutory liquidity ratio (SLR) deposits in sponsor banks in the case of regional rural banks (RRB) into government securities (G-secs), which are not in a position to do so. The central bank also asked RRBs, along with co-operative and local area banks (LABs), not to offer deposit rates above what the commercial banks offer. This, the RBI said, will add to the burden on these banks.

SLR holdings of RRBs in the form of deposits with sponsor banks maturing beyond March 31, 2003 may be allowed to be retained till maturity. These deposits may be converted into G-Secs, on maturity, in case the concerned RRBs have not achieved the 25 per cent minimum level of SLR in G-Secs by that time, RBI said in the credit policy announced on Tuesday.

RBI also said, although deposits with sponsor banks contracted before April 30, 2002 would be reckoned for SLR purpose till maturity, RRBs are advised to achieve the target of maintaining 25 per cent SLR in G-Secs out of the maturity proceeds of such deposits with sponsor banks as well as from their incremental public deposits at the earliest.

While a number of RRBs have already achieved the minimum level of SLR in government securities, some RRBs and their sponsor banks have expressed difficulty in premature withdrawal of deposits reckoned for SLR purposes and accordingly, the norms have been relaxed to them, RBI added.

RRBs were required to maintain SLR at 25 per cent of their net demand and time liabilities in cash or gold or in unencumbered government and other approved securities. In this regard, balances maintained in call or fixed deposits by RRBs with their sponsor banks were treated as cash and hence, reckoned towards their maintenance of SLR. As a prudential measure, it was considered desirable on the part of all RRBs to maintain their entire SLR portfolio in government and other approved securities March 31, 2003.

Referring to higher rates offered by RRBs, co-operative banks and LABs, RBI said these discretionary provisions generally add to increase in the cost of deposits to the concerned institutions.

And in order to remove the above anomalies, RBI asked these banks not to pay any additional interest on the savings bank accounts over and above what is payable by commercial banks.

It also said: Co-operative banks are encouraged not to pay interest on current accounts. Sponsor banks are encouraged not to pay interest on the current accounts maintained by RRBs with them.

The impact of the measure on the co-operative banks might be two fold, according to Janakalyan Sahakari Bank CEO Satish Marathe. One is that immediately, the cost of deposits will come down.

But on the other side, the depositors with banks may shift to term deposits for earning higher. If the latter is not happening the move will benefit the banks, otherwise it will be a neutralising measure, Mr Marathe added.