Indian scheduled commercial banks didn’t increase their investments in 2012, with statutory liquidity ratio (SLR) securities accounting for over three-fourths of the total amount. The scheduled commercial banks’ investments in SLRs, commercial papers and shares saw negligible growth during the year, but this was sufficient to tide over a small decline in their holdings of bonds and debentures and financial institutions.

Indian scheduled commercial bank investments had registered substantial growth of 17.1 per cent in 2011. This came on the back of an increase in SLR deposits by over Rs 2.5 lakh crore in the wake of the RBI’s move to hike the SLR ratio to 24 per cent at the end of 2010.

In the previous year, the investments had grown by a modest 1.8 per cent, but in 2009, they had jumped by 32.2 per cent. This was due to the RBI hiking the SLR rate to 25 per cent during the year.

The SLR rate hikes and reductions alone do not account for the higher amount parked by banks in these securities. The Reserve Bank has apprehended that deterioration in the credit quality of assets has increased aversion to risk in the banking sector. This has in turn led to a portfolio switch from credit creation to investment in SLR securities on the back of large government market borrowings.

(This article was published on February 14, 2013)
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