The Hindu Business Line : Banks selling non-SLR bonds

Bankers said that they were selling the investments to conform to the capital to risk weighted asset ratio norms. Under the current guidelines, banks are expected to maintain a minimum CRAR of 9 per cent, though banks prefer to have the ratio closer to 12 per cent. This includes both tier-one (equity plus reserves) and tier-two capital (subordinated debt and borrowings with maturities in excess of five years). The bankers also said that liquidity was likely to tighten as credit growth continued to remain high.

On a year-on-year (YoY) basis, non-SLR investments have dropped by Rs 1,2,438 crore. Currently, the banking sector's non-SLR is estimated at Rs 8,0636 crore. The sharpest drop in the debenture holdings of both private and public sectors dropped by Rs 2,429 crore on a YoY basis. Equity holdings, on the other hand, have increased by Rs 2,054 crore. But bankers said that this increase was only notional, since the bulk of the increase was due to the appreciation in the value of the holdings. This was particularly where some of the banks held shares of public sector majors such as ONGC and NTPC.

In the case of debt papers, the value has depreciated largely on account of increase in interest rates. Yields on AAA rated corporate papers are currently in the region of 9 per cent as against about 7 per cent one year ago with tenors above five years. Besides, some of the non-SLR holdings consisted of debt papers issued by State utilities, especially power utilities, finance and investment corporates. Most of these investments were faced with large servicing overdues and had depreciated on account of their becoming non-performing assets.

Illiquid papers

Bankers said that the investments were also being sold due to their inherent illiquidity since they could not be deployed in the repurchase operations. Besides, there were also few takers for the papers in the collateralised borrowing and lending obligations markets. At one point of time, institutions such as the Life Insurance Corporation were prepared to take debt papers. However, even LIC was cherry-picking debt portfolios of the banks, they said. The sources said that LIC purchased at high discounts only those papers of State utilities and SFCs supported by sub-sovereign guarantees.

The only large buyers for non-SLR portfolios of the banking sector were the mutual funds, the bankers said.