The statutory liquidity ratio ordinance, aimed at removing the floor limit for bank deposits in government securities, is likely to be issued by the month end. | |
| The ordinance is likely to be sent in a couple of days for approval by President APJ Abdul Kalam, a senior Finance ministry official said. |
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| The ordinance is aimed at giving operational flexibility to the Reserve Bank to fix statutory liquidity ratio (SLR) at below 25 per cent, depending on monetary policy requirement. "We expect the ordinance to be issued by the month-end or latest by February 3," the official said. |
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| At present, banks are mandated to invest a minimum of 25 per cent of their deposits in government securities. The cabinet last week approved the ordinance proposal. |
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| There are differing views on whether the RBI would actually lower the SLR in the near future. |
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| This is because it is trying to slow credit growth pace of 30 per cent per annum to contain inflation. A reduction in SLR will free up more funds for banks to lend to the private sector. |
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| The government has adopted the ordinance route so as to give the discretionary powers to RBI at the earliest. |
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| Change in SLR norms is part of the pending Banking Regulation (Amendment) Act 1949, but some other proposed changes relating to voting rights of foreign investors in private banks, has resulted in a stalemate as government's communist allies are opposed to it. |
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| Government will discuss voting rights issue with allies during the coming budget session, so that the amendments are passed by the parliament at the earliest, minister of state for finance P K Bansal said. |
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| Under the present rules, irrespective of their shareholdings in private banks, the voting rights of foreign investors is capped at 10 per cent. |
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| "We would like that to be raised in commensurate with their shareholdings," Bansal said. |
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| This is a hindrance for attracting more funds to the banking sector, especially when government has adopted a roadmap to give up to 74 per cent ownership in private banks to foreign investors, subject to RBI approvals. |
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