The Hindu Business Line : Banks align G-Sec holdings close to mandated SLR

Public and private sector banks have aligned their Government securities investments close to the mandated statutory liquidity ratio (SLR) of 25 per cent.

Estimates are that most of the banks' Government securities investments are within 30 per cent of their net demand and time liabilities. But some large banks, aggressive in lending, have dropped their ratios closer to 27 per cent. These include large public sector banks such as Canara Bank. This is inclusive of the recapitalisation bonds issued by the government to public sector banks that were treated as part of the SLR. As a result, banks' holdings of Government securities, as on March 31, were down Rs 22,000 crore over the corresponding period of the previous year.

IOB's growth in credit was met by offloading its SLR securities, which now form 28.67 per cent of demand and time liabilities against 37.34 per cent last year."

Investment-deposit ratio

Despite the reduction in the investment in government securities, banks' investment-deposit ratio continued to be close to about 37 per cent. Banking sources said that this was largely on account of investments in top-rated public sector bonds, corporate debt and in bonds issued by other banks and financial institutions. The sources said that the reduction in investments was prompted by their large credit funding requirements. In fact, bankers said that the sale of investments allowed them to operate at high incremental credit-deposit ratios of about 120 per cent.

Bankers said that even their existing G-Sec holdings were aligned closely to the held-to-maturity category, which is 25 per cent of their demand and time liabilities. Only a small portion was held as part of their available-for-sale or held-for-trading categories. This small holding of marked-to-market category of securities allowed them to contain losses on account of depreciation in the event of sharp spikes in yields. Bankers said that this was also one of the major reasons for the reduction in trading volumes in the debt markets during the last few months.

Preference for T-bills

But bankers said even the existing G-Sec investments had an average maturity profile of just three years. This was also one of the reasons for high preferences for treasury bills.

The preference for short maturities was on account of liquidity concerns. Most of the long tenor securities, with maturities in excess of 10 years were sold to the life insurance companies, the bankers said, either through outright sales or through switches (exchange of securities).

Besides, the sources said that till last week all their holdings of State development loans were treated as illiquid.

For most banks, SDLs accounted for about 10-15 per cent of investments. These securities were now liquid since they had become eligible for repurchase operations at the RBI window.

However, bankers said, that they would have to increase their G-Sec investments to conform to the SLR norms due to large deposit accretions.

The RBI's statement released indicated a year-on-year increase in deposits by a little over Rs 26,000 crore since the beginning of this fiscal, mostly in time deposits.