Bankers see SLR, CRR dropping to 15% & 3%

With government proposing to give flexibility to the Reserve Bank of India (RBI) in fixing prudential limits, bankers expect a cut in statutory liquidity ratio (SLR) and cash reserve ratio (CRR) to 15% and 3%, respectively, which could increase banks' funding mainly to infrastructure projects.

The government is planning to amend the Banking Regulation Act and the RBI Act to enable the central bank to lower SLR and CRR maintained by banks. "We are ready with the bill. It will be introduced soon," economic affairs secretary Rakesh Mohan said today.

The amendments in legislation assume significance as it would considerably free resources of banks and enable them to step up lending to industry, agriculture and infrastructure sectors, which in turn will spur growth in the economy.

Banks have to mandatorily set aside 25% of their deposits as SLR and another 5% as CRR now.

"There is enough room for reducing SLR," a senior banker said, adding it will not only unlock resources and ensure higher gains from lending, but also reduce opportunity costs.

The RBI has mandated that banks maintain SLR every day in the form of cash, gold or unencumbered approved securities as a proportion of their total demand and time liabilities.

Expecting pressure on profitability owing to signs of hardening interest rates, the banker said an SLR cut would be beneficial to the banking industry.