SEARCH

RBI Act amendments: `Positive for banking sector'

Share  ·   print   ·  

Will enable the RBI to manage the liquidity situation better

MR S. VENKITARAMANAN
MR S. VENKITARAMANAN

Our Bureau

Chennai, May 17

The amendments to the RBI Act are expected to be positive for the banking sector. The flexibility to be given to the RBI to fix the Statutory Liquidity Ratio (SLR) and the Cash Reserve Ratio (CRR) could result in greater freedom for banks to deploy resources into more profitable avenues.

Banks are currently required to keep 25 per cent of their deposits in government bonds as part of the SLR and keep another five per cent of deposits as cash with the RBI as part of CRR .

Reform process

The former RBI Governor, Mr S. Venkitaramanan said, "This reform is a continuation of the liberalisation process. It is a good development and is being made possible because the fiscal deficit is also under control. So far the SLR has been irrelevant, because banks have tended to invest more than the required sum in government bonds. This enabling legislation will give RBI powers to vary the ratios according to the liquidity situation and the banks can deploy their money in more profitable avenues."

Mr H.N. Sinor, Chief Executive, Indian Banks' Association, said that the development was very positive. He said, "Resources were hard to come by because statutory pre-emption took away nearly one third of the money coming in. With the economy growing and greater demand for corporate credit, there will now be more leeway for the RBI to bring down the SLR if necessary."

Mr Sinor said that many banks had brought down their SLR holdings to 27-30 per cent compared to about 40 per cent a year ago. He said there might be a possibility of an increase in the mark to market requirement on government bonds, if the SLR ratio is reduced.

(This article was published in the Business Line print edition dated May 18, 2006)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.

O
P
E
N

close

Recent Article in MONEY & BANKING

E-banking complaints on the rise in AP, Telangana: Ombudsman

In the two States of Andhra Pradesh and Telangana, complaints related to electronic banking transactions are on the rise. ATM, debit... »


Comments to: web.businessline@thehindu.co.in. Copyright © 2014, The Hindu Business Line.