IDBI buys Rs 3000 cr gilts to bolster SLR kitty

The Industrial Development Bank of India (IDBI) has bought Rs 3,000 crore worth of government securities to build up its statutory liquidity ratio (SLR) portfolio.

It has been granted five years forebearance by the Reserve Bank of India (RBI) to meet the SLR requirements following its conversion into a bank. IDBI's SLR requirement today would amount to Rs 12,000 crore.

"While we have slowly started building up our SLR portfolio, it would be more advantageous for me to build the portfolio by raising cheaper funds from savings and current account deposits," said O V Bundellu, executive director. IDBI has started building up the SLR portfolio as it does not wish to wait till the fifth year.

IDBI had deposited Rs 2,200 crore with the Reserve Bank of India on October 1, the day it converted into a bank, towards cash reserve ratio (CRR).

Banks need to invest 25 per cent of their net demand and time liabilities (deposits) in government securities for the purpose of meeting the SLR and place 5 per cent of the deposits with the RBI for maintaining the CRR.

IDBI has to some extent hedged its SLR portfolio against the volatile interest rates by buying securities carrying floating coupon.

"The SLR portfolio with floating rate securities has eliminated the risks of depreciation in their value," Bundellu said.

IDBI has petitioned the RBI to allow it to have equity exposure in excess of the cap of 5 per cent of total investments. The bank had built up huge equity holdings during its earlier incarnation as a development finance corporation.

IDBI is also seeking a three year forbearance from RBI for meeting the priority sector lending norms, as was allowed in the case of ICICI Bank.

Bundellu said after the merger of IDBI Bank with IDBI, the bank will have two strategic business units "" retail banking and wholesale banking.

The retail bank's assets side will push more of home loans as non-performing loans in mortgage sector is very less. Car and consumer loans will be part of the bank's portfolio as it cannot say no to a depositor who asks for it.

IDBI's wholesale strategic business unit will continue to lend long-term to capitalise on its competitive advantage in wholesale lending to sectors such as infrastructure.

IDBI's retail deposits are 33 per cent of the total and the bank would like the share to go up to 70 to 80 per cent.