Bank HTM cap may be cut

The Reserve Bank of India (RBI) is considering a cut in the held-to-maturity (HTM) ceiling for banks.

Anand Sinha, the deputy governor of the RBI, said in a conference call with researchers and analysts on Tuesday that the RBI is looking into a recommendation from a central bank committee to cut the HTM ceiling.

“It is a fact that HTM is on the higher side. We will be looking at it in the context of cutting down of HTM to improve market liquidity,” said Sinha.

He, however, did not specify a timeframe as to when the central bank would cut the ceiling.

Under HTM, banks hold gilts until its date of maturity. The limit is currently at 25 per cent, but it has traditionally been aligned with banks’ statutory liquidity ratio (SLR).

The SLR is the portion of minimum investments in gilts and other approved securities that banks are supposed to maintain. It was cut by 1 per cent to 23 per cent in July and implemented in August.

The 10-year benchmark gilt — 8.15 per cent Government Stock, 2022 — rose to a day’s high of 8.22 per cent after Sinha’s comments, marking a two-month high. The yield finally closed at 8.21 per cent, compared to the previous close of 8.18 per cent. The street fears that a cut in the HTM ceiling would release more gilts, particularly the illiquid ones in the market.

The RBI also said it will not intervene in the forex market to boost its foreign exchange reserves. “No, we will not intervene to boost our foreign exchange reserves,” said RBI governor D Subbarao. He added that the exchange rate should be largely market driven and RBI’s intervention should be only to manage volatility.

India’s foreign exchange reserves increased by $359 million to $295 billion over the week ended October 19, 2012.