'RBI hasn't sought finmin view on banks' HTM cap hike'

The Reserve Bank of India (RBI) has not approached the finance ministry on the issue of raising cap on banks’ held-to-maturity (HTM) gilt portfolio, a senior ministry official said Wednesday.

“The issue of raising cap on HTM bonds is between banks and the RBI. They (RBI) have not sought our views on the issue,” the official said. Monday, RBI Deputy Governor KC Chakarabarty had said the central bank was considering increasing banks’ limit on HTM category of bonds that are held as part of their investment.

“Raising the HTM cap will definitely bring down cost of government borrowing, as demand for bonds will go up and will also help the central bank conduct government borrowing smoothly. However, it has other implications too. Hence, RBI will take a final call keeping in mind the complete picture,” the official said.

RBI Deputy Governor Usha Thorat is handling the issue of raising cap on banks' held-to-maturity portfolio. Last month, she had said some banks had approached RBI on the issue and that the central bank was looking into it.

Banks do not have to incur mark-to-market losses in HTM segment, unlike in the available-for-sale and held-for-trading categories.

Currently, the cap on held-to-maturity segment is 25 per cent of a bank’s net demand and time liabilities.

Banks’ HTM space has shrunk following heavy purchases of gilts in the HTM segment due to a series of government bond auctions.

Government borrowing is set to almost double to Rs 4.51 lakh crore in 2009-10, putting upward pressure on yields.