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New Delhi March 16 The Lok Sabha on Friday passed the Banking Regulation (Amendment) Bill 2007 through a voice vote to provide more operational flexibility to the Reserve Bank of India (RBI) in the conduct of monetary policy.

This Bill seeks to replace the Ordinance that was promulgated on January 23 to empower the RBI to specify the statutory liquidity ratio (SLR) without any floor.

Monetary Policy

The Ordinance, popularly known as SLR ordinance, was promulgated to facilitate the removal of the then existing SLR floor of 25 per cent, while leaving the ceiling of 40 per cent intact. It was felt that the RBI, as the regulator and the authority vested with the powers to conduct monetary policy, should have the necessary flexibility regarding stipulation of holding of liquid instruments by banks.

At present, banks are required to invest a minimum of 25 per cent of their net deposits and time liabilities in government securities. If the SLR is reduced (pegged at a level below 25 per cent), then banks would be able to sell some of their bond holdings and free up cash for providing loans to companies and individuals at better returns.

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