The Cabinet has approved bringing an ordinance to remove the statutory liquidity ratio in a bid to increase liquidity for private sector. Finance Minister P Chidambaram said that the Reserve Bank of India, if it wished, could set a fresh rate later.
The ordinance will amend the Banking Regulation Act 1949, under which banks must maintain a minimum SLR of 25 per cent, which meant that at least 25 per cent of their deposits had to be kept in government securities. The amendment will give the Reserve Bank of India operational flexibility to lower the SLR.
"The government’s move will help in increasing liquidity for private sector without increasing the money supply," said M.V. Nair, CMD of Union Bank of India. "It reflects the government's confidence in the robustness of the economy."