Ordinance to repeal minimum SLR
12 January 2007
In a move to enable RBI to ease liquidity pressures as and when it feels the need to, the union cabinet has decided to bring an ordinance to empower RBI to change the minimum 'statutory liquidity ratio' (SLR) limit that banks have to compulsorily maintain in approved government bonds, cash and gold.
Currently banks are required to maintain 25 per cent of their total deposits in the form of liquid assets comprising cash, gold and approved securities, mostly government bonds as SLR.
This will arm the RBI with more operational flexibility in managing the monetary policy. The ordinance would also have a provision removing "inadvertent" anomaly regarding functioning of bank branches in special economic zones.
The ordinance would also have provisions for regulating bank branches in SEZs.
With the Reserve Bank effecting 0.50 per cent rise in the Cash Reserve Ratio (CRR) to 5.50 per cent that absorbed Rs13,500 crore from the banking system, the liquidity position has become tight, pushing up short-term interest rates, and fears that increasing cost of funds could lead to a postponement of new investments.