The SLR cut will bear fruit only once the RBI begins to buy government bonds through open market operations, say bankers. ?The rationale of SLR cut is that RBI wants bank credit to flow into productive sectors rather than the government. Unless they infuse cash into the system, this cut will not have much impact,? said the treasury head of a European bank.
However, RBI governor D Subbarao said there is no linkage between the SLR cut and the central bank’s OMOs. ?We said we will manage liquidity through OMOs, but that is not to suggest that we will manage yields,? Subbarao said.
Subbarao hopes that the SLR cut will reduce banks’ reliance on high-cost bulk deposits, beside increasing their access to collateralised liquidity. However, RK Bakshi, executive director at Bank of Baroda, said unless OMOs are conducted, deposit rates are unlikely to come down.
RBI deputy governor Subir Gokarn said the SLR cut is not intended to put immediate money into banks’ hands. The cut will enable banks to access liquidity as and when they get lending opportunities.
Bankers were noncommittal over a cut in their base rates following the SLR cut. The cut is expected to infuse R60,000 crore of liquidity into banks.
SBI chairman Pratip Chaudhuri said retail loans could be priced lower, but didn’t elaborate on the base rate. The efficacy of SLR is debatable, considering the excess bond holdings of the banks because of high government borrowing, bankers said.
In theory, an SLR cut results in banks shedding sovereign securities and lending to corporates. However, the high government borrowing has resulted in most banks keeping SLR far in excess of the regulatory mandate.
?SLR is a plus for incremental liquidity. It would encourage banks to lend more. But I have doubts of its efficacy right now,? said P Mukherjee, head of treasury at Axis Bank.