Business

Abolish SLR, end loan waivers, says RBI panel

  • HT Correspondent, Hindustan Times, New Delhi
  • |
  • Updated: Jan 08, 2014 12:06 IST

A high-level Reserve Bank of India (RBI) committee has recommended that the central bank should gradually do away with the statutory liquidity ratio (SLR), the portion of deposits that banks must compulsorily park in government securities. If accepted, this would dramatically free up nearly a quarter of deposits for industrial and consumer loans — and possibly lower interest rates.

The mandated SLR currently stands at 23%, while most banks keep it around 27% as state-backed bonds often end up giving attractive rates at low risk.

“Reducing SLR on a gradual basis would be healthy for the financial sector and this would allow banks to direct their resources to a more productive use,” DK Joshi, chief economist at credit rating firm Crisil, told Hindustan Times.

However, a government bank chairman who did not wish to be identified said that it would take time for the government to fully scrap SLR.

The Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households, headed by Nachiket Mor, former executive director at ICICI Bank, has also recommended the creation of a separate category of banks to serve low-income households with a minimum entry capital requirement of Rs. 50 crore — a fraction of the currently compulsory Rs. 500 crore.

Banks should provide facilities for withdrawal, payment and deposit within 15 minutes walking distance anywhere in the country, the report said. It said all Indians above 18 to have a “full-service, safe, and secure electronic bank account” by 2016 and the special bank category would aid this objective.

The panel also underlined the need to increase the priority sector lending cap from the current 40% to 50%.  The panel has also recommended abolition of interest subsidies and loan waivers.

 

also read

It’s official now! Indian economy grew faster than earlier estimate...

blog comments powered by Disqus