Bankers want SLR reduced if HTM bond limit is cut

Bankers have asked the Reserve Bank of India (RBI) to cut the Statutory Liquidity Ratio (SLR) limit if it also considers reducing the Held-To-Maturity (HTM) limit of banks.

In a meeting of chief financial officers (CFOs) of public sector banks with RBI today, the central bank sought feedback on the idea of reducing the HTM limit. The CFOs suggested a cut in the SLR limit from the present 23 per cent, so that the impact on banks’ balance sheets was minimal.

RBI has been in favour of reducing the HTM, whose upper limit is 25 per cent of SLR securities but it is traditionally aligned to the SLR ratio, currently 23 per cent. Under HTM, banks hold government securities (G-Secs) until the date of maturity. G-Secs under HTM are valued at amortised cost and are not marked-to-market (the exercise of revaluing at current cost).

RBI had formed a working group on enhancing liquidity in the G-Secs and interest rate derivatives market, under the chairmanship of R Gandhi, one of its executive directors. The group had given a report and suggestions, placed on the RBI website on August 13 last year. The recommendations were divided into three categories – the G-secs market, retail participation and the interest rate derivatives market. One recommendation for the G-Secs market was that “a road map to gradually bring down the upper limit on the HTM portfolio in a calibrated manner to make it non-disruptive to the entities and other stakeholders may be prepared”.

“As we move towards global regulations, our policies should also be aligned with global norms” said another executive at today’s meeting. The implications of such a move would vary across banks, as some private banks don’t hold SLR securities in HTM at all and some banks hold these in HTM up to 25 per cent, he said.

RBI deputy governor H R Khan, speaking to Reuters news agency in Colombo, said: “We can do it in a phased manner, quarterly basis, half-yearly basis, till the time it is phased out.” Implementation could be started as early as April, he had said.