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An RBI panel today called for gradual abolition of statutory liquidity ratio, under which banks are bound to park a whopping 23% of deposits in government securities and other liquid instruments as a measure of solvency, saying the tool has "outlived its utility".
"It is clear that SLR (statutory liquidity ratio) as a prudential tool has outlived its utility for both banks and NBFCs and eventually needs to be removed," the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households said in its report submitted today.
Statutory liquidity ratio refers amount that commercial banks require to maintain in the form of gold or government approved securities before providing credit to the customers.
The multi-member panel is headed by Nachiket Mor, former ICICI Bank Executive Director.
It can be noted that many lenders, especially the private and foreign ones, complain about the SLR requirement. Even state-run bankers term this as dead money and lazy banking. Though the requirement is only 23% the average SLR holding is over 27% for the system.
The SLR component is also aimed at helping a bank in a any crisis, but the panel pointed to the capital buffers which cushion the bank in such an eventuality.
For the non-banking lenders, the committee said: "We should immediately do away with the SLR requirements for the deposit taking NBFCs which now have a SLR requirement of 15%".
