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Our Bureau

SLR status gives banks more leeway to access resources to lend

New Delhi , Aug. 20

The Cabinet Committee on Economic Affairs (CCEA) has approved the conversion of recapitalisation bonds issued to nationalised banks into tradable securities that would also qualify for Statutory Liquidity Ratio (SLR) status.

The move to convert these recap bonds into tradable securities with the SLR status would facilitate banks to access additional resources for lending to the productive sector in the light of the increasing credit needs of the economy, an official spokesperson said.

Depth in debt market

Bankers said that the move would bring more depth in the debt market and help banks sustain loan growth. They said that the decision to accord SLR status would, in particular, add to the liquidity, as such bonds would be attractive to potential investors.

SLR is an amount that banks in India have to maintain in cash, gold or approved securities. Currently, the quantum is specified as 25 per cent of the demand and time liabilities of a bank as on the last Friday of the second preceding fortnight.

Tide over financial stress

Informed sources said that the Government had since the mid-nineties issued bonds worth more than Rs 22,800 crore (in two tranches) as recap bonds and perpetual securities to help certain weak State-run banks to tide over financial stress and improve their capital adequacy. These bonds/securities could not be traded and were to be held to maturity.

The Finance Ministry is expected to convert the recap bonds into tradable securities with SLR status in tranches of around Rs 5,000 crore every quarter. Indications are that the tenor, interest rates and timing of the issuance of new securities would depend on the Government's borrowing schedule.

More Stories on : Public Sector Banks | Financial Policy | Corporate Bonds

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