Financial Daily from THE HINDU group of publications
Tuesday, Oct 21, 2003
Financial Daily from THE HINDU group of publications Tuesday, Oct 21, 2003 |
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Money & Banking
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Govt Bonds Banks hold gilts much in excess of SLR Harish Damodaran
New Delhi , Oct. 20 EVEN as yields on 10-year gilts have plunged below the 5 per cent mark, scheduled commercial banks' (SCB) holding of government paper has crossed 40 per cent of their net demand and time liabilities (NDTL). As on October 3, the outstanding investment of SCBs in government and other `approved' securities stood at Rs 6,21,807 crore, representing 40.5 per cent of their NDTL, which mainly comprises deposits. This is as against the Rs 3,83,991 crore that they would have been required to hold in order to meet the 25 per cent statutory liquidity ratio (SLR) requirement prescribed by the Reserve Bank of India (RBI). In other words, the excess SLR investments of banks currently amounts to a staggering Rs 2,37,816 crore, which is almost three-and-a-half times the levels prevailing five years ago. From the accompanying table, it can be seen that over the last five years, the ratio of banks' SLR investments to their NDTL has gone up by almost five percentage points. To the extent interest rates and secondary market yields have fallen in recent years, banks have, no doubt, made a killing on account of the appreciation of their overall G-Sec portfolio.
This is especially true in respect of their holdings of high coupon-bearing securities issued in the past. But the same cannot be said of their more recent investments, which have been typically at sub-six per cent coupons even for 15-year paper. In this context, it is significant to note that the incremental SLR-NDTL ratio during the current fiscal till October 3 has been as high as 65.9 per cent. Simply put, of the Rs 1,12,669 crore increase in their NDTL between March 21, 2003 and October 3, 2003, as much as Rs 74,261 crore has been invested by banks in government and other approved securities. This compares to SLR investments of Rs 67,823 crore during the same period last year, translating into an incremental ratio of 44.4 per cent. On the other hand, the expansion in bank credit so far this year has been a mere Rs 22,853 crore, against Rs 85,870 crore for this period last year.
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