Toeing the line of Reserve Bank's tight money stance, the Government on Friday withdrew the facility to the State Bank of India to use its rights issue bonds for meeting the mandatory Statutory Liquidity Ratio.
Statutory Liquidity Ratio (SLR) is the amount a bank has to maintain in cash, gold or government securities.
The government will now issue special marketable bonds and will subscribe all its rights of about 60 per cent of the SBI rights issue opening on February 18.
The State Bank is coming out with a rights issue to rise about Rs 16,000 crore to meet the global Basel-II norms and for its expansion plans.
According to an earlier decision, the bank had to receive the rights consideration in the form of bonds that could have been used to meet its SLR of 25 per cent of total deposits.
The SBI has informed the Bombay Stock Exchange that the change in the decision of the government was on the advice of the Reserve Bank.
"The Government has informed the bank that the matter was revisited in the light of suggestions received from the Reserve Bank and it was decided that the subscription of the government to the rights issue would be through issuance of special marketable government securities," it said.
Faced with inflationary expectations following hike in petroleum prices, the government has not yet decided on the demand for granting SLR status to the oil bonds worth Rs 40,000 crore it is likely to issue to the oil companies.
The government decision to change the nature of securities being issued to the SBI was conveyed to the bank on Thursday.