Bankers seek further relaxation in SLR

Say tight liquidity will affect business in second half too.

With liquidity remaining tight, bankers on Monday sought a further relaxation in the statutory liquidity ratio even as they complained of the adverse impact on deposit mobilisation and credit flow. During their first meeting with Reserve Bank of India Governor D Subbarao, bankers said the adverse impact on business, which has affected their first half performance, could haunt them in the second half too, which is the busier part of the year.
 

KEY INDICATORS
	Y-O-Y % change
	Aug 29, '08	Sept 12, '08
Total bank credit	25.42	25.58
Non-food credit	25.63	24.45
Aggregate deposit	22.35	22.50
Demand deposit	19.75	18.30
Time deposit	22.77	23.25

 

Earlier this month, RBI allowed banks in dire need of funds to dip below the mandated 25 per cent SLR floor. The one percentage point leeway can be availed of without paying any penalty. Banks have to invest at least 25 per cent of their net demand and time liabilities in government securities for SLR need.

“We suggested a reduction in SLR on an incremental or stock basis,” a banker said after a pre-monetary policy meeting with the RBI governor. The second quarter review of the monetary policy is scheduled on October 24.

The central bank officials, however, did not indicate any course of action it may take, bankers said. “They only listened to us. They do not indicate anything in these meetings,” said another banker who attended the meeting.

Bankers present at the meeting included State Bank of India Chairman O P Bhatt, Citibank Regional Head Sanjay Nayar, Axis Bank Chairman P J Nayak, Indian Banks’ Association Chief Executive Officer K Ramakrishnan.

Bankers said that they sought to explain the reason for credit growth being higher than RBI’s target.

“There is demand from borrowers. For good economic growth, credit growth has to be there,” said a banker. Also, demand for loans is high due to the government’s expenditure programme. “Credit growth is robust because of government borrowing,” a banker said.

The central bank data shows credit growth for the year to September 12 was nearly 25 per cent as against RBI’s 20 per cent target for 2008-09. Another banker said they reasoned with RBI that most of the credit growth in the first half of the current financial year was due to demand from oil and fertiliser companies.

Bankers also indicated that the central bank was not very happy with the rates at which banks were mobilising deposits. “Liquidity is scarce, therefore pricing is also more. Liability management is of greater importance on Monday,” a banker said.

State Bank of India recently launched 1,000-day deposit at 10.50 per cent, while other banks are also raising term deposits at 10.50 per cent. Interest rates on three-month certificate of deposits have gone up by 75-80 points to over 12 per cent in September from August.

Bankers had remained similar demands last week too during a meeting with RBI deputy governor Rakesh Mohan.

Despite RBI’s measures following the Lehman bankruptcy petition a fortnight ago, liquidity has remained tight.

While call rates have stayed in double-digit for most part of the fortnight, banks have used the two liquidity adjustment facility operations conducted by the central bank to borrow at leat Rs 50,000 crore on a daily basis.