RBI Further relaxed SLR to provide More Funds to Banks for Lending

The Reserve Bank asia (RBI) on 20 August 2013 further relaxed the Statutory Liquidity Ratio (SLR) to provide more funds to banks for lending. It had been in view of the losses suffered by banks inside their investment portfolio. Revising its earlier limit, asking banks to lessen their hold-to-maturity bond holdings gradually to 23 percent of deposits, RBI has allowed banks to retain those holdings at 24.Five percent.

To help ease rupee volatility, RBI will conduct open market operations of long dated government securities worth 8000 crore rupees on 23 August 2013. RBI stated that according to evolving market conditions, it'll thereafter choose the amount and frequency of OMOs (Open Market operations).

What’s SLR?

SLR means Statutory Liquidity Ratio. This term may be used by bankers and indicates the minimum number of deposits the bank has to maintain in type of gold, cash or any other approved securities. Quite simply, it’s ratio of cash and some other approved securities to liabilities (deposits). It regulates the borrowed funds growth in India.

The main objectives for maintaining the SLR ratio are as following:

• To handle the expansion of bank credit. By changing the quantity of SLR, the Reserve Bank India can decrease or increase bank credit expansion.
• To be sure the solvency of commercial banks.
• To compel the commercial banks to buy government securities like government bonds.