RBI committee had considered raising SLR in annual policy

Reserve Bank of India’s Technical Advisory Committee (TAC) on monetary policy had considered increasing the statutory liquidity ratio (SLR) by 100 basis points in the annual monetary policy to tighten liquidity supply to banks.

Currently, the SLR — the mandatory liquid reserves (other than cash) that banks have to maintain with RBI — stands at 24 per cent of net demand and time liabilities.

According to the minutes of the TAC meeting published by RBI, “In addition to the increase in policy rates by 25 basis points each, one member was of the view that SLR could be increased by 100 basis points.” The particular member also suggested RBI's repo facility should be limited to up to two per cent of the excess SLR securities held by banks. This step, if implemented, could limit the flow of liquidity from RBI to banks under the liquidity adjustment facility.

The committee suggested RBI should continue with its anti-inflationary stance, since inflation could pose a major risk to growth in the future. The members, however, had varied opinions on the extent of the rate increase that the central bank should announce on May 3.

“While four members of the committee felt the repo and reverse repo rates be raised by 25 basis points each, two members suggested a rise of 50 basis points each in the repo rate and the reverse repo rate,” said the RBI release. One member also suggested if needed, the central bank could exercise control on capital inflows.

The TAC meeting was held on April 27 and was attended by Y H Malegam, Sanjay Labroo, Dilip M Nachane, A Vasudevan and Sudipto Mundle, along with RBI Governor D Subbarao and four deputy governors.

On May 3, RBI had raised the repo and reverse repo rates by 50 basis points, while the SLR and cash reserve ratio were kept unchanged at 24 per cent and 6 per cent, respectively.