The Hindu Business Line : PSBs liquidating non-SLR investments

With credit demand continuing unabated, public sector banks have begun liquidating some of their investments that do not qualify for the statutory liquidity ratio (SLR).

Bankers said that among the non-SLR investments being sold by the banks are equities, public sector bonds, commercial papers and securitised instruments. The outstanding amount of such investments as on September 1 this year was Rs 78,550 crore.

For the corresponding period of last year, the outstanding amount was Rs 86,481 crore.

The reduction had also helped banks bring down the investment-deposit ratio. Currently, banks' ID ratio is in the region of 35 per cent. But for most banks, the G-Sec investments-deposit ratio was only about 30 per cent. Bankers said that as reduction in the non-SLR investment securities take place, the investment-deposit ratio would align closer to the prescribed SLR. The only securities banks were currently holding on to were oil bonds, tier two bonds of competing banks and bonds issued by public sector undertaking. But bankers said that even these securities would be unloaded during the course of the year, in view of valuation requirements. All these non-SLR investments are expected to be marked to market. Consequently, for banks, volatility in markets could translate into depreciation, bankers said.

What was also prompting them to unload the non-SLR securities was liquidity. Few of the non-SLR securities are eligible for repurchase operations or for raising funds through the collateralised borrowing and lending obligations.

The bankers said that they were also reducing their portfolio of non-SLR investments to reduce their provisioning requirements on standard assets. Under current guidelines, RBI banks are expected to make a provision of one per cent on their standard assets. Besides, bankers said that they also made the move to book profits in the equity markets, especially with the Sensex topping 12,000 points. The profits earned through these sales would be used to beef up their capital and enhancer capital to risk weighted asset ratio. Bankers said capital raising was being resorted to sustain the current pace of credit expansion. Credit is currently growing at annual clip of 31 per cent.

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