In order to further develop the government securities market and enhance liquidity, it has been decided to bring down the ceiling on SLR securities under the HTM category from 24 per cent of NDTL to 22 per cent (As per DBOD.No.BP.BC.42/21.04.2014-15 dated 7 October, 2014) in a graduated manner. Accordingly it is advised that: Banks are permitted to exceed the limit of 25 per cent of total investments under HTM category provided:
a. the excess comprises only of SLR securities
b. the total SLR securities held in the HTM category is not more than 23.50 per cent with effect from January 10, 2015, 23.0 per cent with effect from April 4, 2015, 22.5 per cent with effect from 11, 2015 and 22.0 per cent with effect from September 19, 2015, of their DTL as on the last Friday of the second preceding fortnight.
Banks’ SLR under HTM category to come down to 20.5% by March 2017
The ceiling will be reduced 0.25% every quarter
The Reserve Bank of India said the statutory liquidity ratio (SLR) of banks will come down 0.25 per cent every quarter, from 21.5 per cent of their deposits now to 20.50 per cent in the March 2017 quarter, as announced in the fourth bi-monetary policy in September.
SLR is the portion of deposits that banks have to necessarily maintain in assets, such as cash, gold valued at a price not exceeding the current market price, dated securities and treasury bills issued by the Government of India and State development loans of State Governments.
The reduction in SLR means that for Rs. 100 incremental deposit that banks mobilise, they will need to invest Rs. 20.50 in SLR assets from the quarter beginning January 2017, against Rs. 21.50 now. Simply put, they will have Re. 1 more for lending.
In a single regulation issued to commercial banks, Primary (Urban) Co-operative Banks and State and Central Co-operative Banks, the RBI said the SLR will come down to 21.25 per cent from April 2, 2016; 21 per cent from July 9, 2016; 20.75 per cent from October 1, 2016; and 20.50 per cent from January 7, 2017.
The RBI also decided to concurrently align the ceiling on SLR holdings under the Held-To-Maturity (HTM) category with the mandatory SLR. The securities acquired by the banks with the intention of holding them till maturity are classified as HTM.
Investments in HTM category
Currently, banks are permitted to hold investments under the HTM category in excess of the limit of 25 per cent of their total investments, provided the excess comprises only SLR securities and the total SLR securities held under the HTM category does not make up more than 22 per cent of deposits.
According to the latest RBI notification, the ceiling on SLR securities under HTM will be reduced from 22 per cent to 21.50 per cent with effect from the fortnight beginning January 9, 2016. Thereafter, both the SLR and the HTM ceiling will be brought down by 0.25 per cent every quarter till March 31, 2017.
Thus, the Reserve Bank permitted banks to bring down the statutory liquidity ratio securities under held-to-maturity category by 1.25 per cent to 20.50 per cent by 2017.
The move is expected to unlock funds for lending.
SLR is the portion of deposit to be mandatorily invested in government securities.
SLR was reduced to 21.50 per cent of net demand and time liabilities (NDTL), or total deposits, with effect from February 7, 2015.
To align them, it has been decided to bring down the ceiling on SLR securities under HTM to 21.50 per cent from 22 per cent with effect from the fortnight beginning January 9, 2016.
“Further, as announced in the fourth bi-monthly monetary policy statement, 2015-16, on September 29, 2015, it has been decided to progressively bring down SLR by 0.25 per cent every quarter till March 31, 2017 and concurrently reduce ceiling on SLR holdings under HTM in alignment with the SLR requirement,” RBI said in a statement.
The gradual reduction in SLR reduces the risk of large government borrowings crowding out the private sector investments over the long term, analysts said.
SLR cuts will mean banks will have more money in hand for lending and the cut in HTM would mean banks have to mark to market more securities that they hold.