RBI permits banks to bring down SLR under HTM to 20.50% by March 2017

Reserve Bank of India (RBI) in its latest notification has permitted the banks to bring down the statutory liquidity ratio (SLR)securities under held-to-maturity (HTM) category by 1.25 per cent from 22 percent of their deposits to 20.50 per cent. It will come into effect from the fortnight beginning January 9, 2016. Thereafter, both the SLR and the HTM ceiling will be brought down by 0.25 per cent every quarter till March 31,2017.

SLR was reduced to 21.50 per cent of net demand and time liabilities (NDTL), or total deposits, with effect from February 7, 2015. In order to align them, RBI has taken this decision to bring down the ceiling on SLR securities under HTM. This move is expected to unlock funds for lending.SLR cuts will mean banks will have more money in hand for lending and the cut in HTM would mean banks have to mark to market more securities that they hold.The securities acquired by the banks with the intention of holding them till maturity are classified as HTM.

As announced in the fourth bi-monthly monetary policy statement, 2015-16, on September 29, 2015, it has been decided to progressively bring down SLR by 0.25 per cent every quarter till March 31, 2017 and concurrently reduce ceiling on SLR holdings under HTM in alignment with the SLR requirement.

SLR is the portion of deposits that banks have to necessarily maintain in assets, such as cash, gold valued at a price not exceeding the current market price, dated securities and treasury bills issued by the Government of India and State development loans of State Governments. At present, banks are permitted to hold investments under the HTM category in excess of the limit of 25 per cent of their total investments, provided the excess comprises only SLR securities and the total SLR securities held under the HTM category are not more than 22 per cent of total deposits.