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RBI CORNER

Financial inclusion need not be pushed beyond a RBI allow banks to bring
point: Rajan down SLR to 20.50% by
March 2017
Reserve Bank of India Governor "In my sense, beyond a certain point...
Raghuram Rajan has said that financial (Financial inclusion) becomes actually The Reserve Bank of India has per-
inclusion should not be pressed beyond negative," he said, adding that every- mitted banks to bring down the
a point because the beneficia-
ries may not have the capac- one should not be pushed to Statutory Li-
ity to make use of the funds borrow. quidity Ratio
made available to them. (SLR) securi-
The RBI governor also made ties under
Rajan made these comments a case for strengthening the held-to-ma-
while participating in a semi- payment mechanism to im- turity (HTM)
nar on "Financial Inclusion: prove traditional methods for category by 1.25 per cent to 20.50
Can It Meet Multiple Macroeconomic delivery of credit. per cent by January 2017. The move
Goals?" on the sidelines of the IMF- is expected to unlock funds for
World Bank meetings. Pushing financial He further said technology and the lending.
inclusion beyond a point can have electronic model could be used for im-
negative impact because people at the proving businesses at remote centres. SLR is the portion of deposit to be
bottom of pyramid do not have capac- At the same time, Rajan made a strong mandatorily invested in government
ity to absorb credit, he said. case for developing capacities to securities.
deal with the misuse of technology by
criminals. SLR was reduced to 21.50 per cent
of net demand and time liabilities
RBI announces timetable reduction in SLR (NDTL), or total deposits, with effect
from February 7, 2015.
The Reserve Bank of India has an- fall to 21% by July 9, 2016. It would fur-
nounced a reduction in the share of ther be lowered from October 1, 2016 To align them, it has been decided
government securities that banks have to 20.75%. The RBI said that the last to bring down the ceiling on SLR se-
to mandatorily hold in their curities under HTM to 21.50 per
books in four equal phases round of reduction in the SLR cent from 22 per cent with effect
starting from next fiscal year. would be one 20.50% by from the fortnight beginning Janu-
January 1, 2017. ary 9, 2016.
The RBI has said that the
bank's investment in govern- As of now, most banks have "Further, as announced in the
ment securities also known as statu- excess SLR in their books fourth bi-monthly monetary policy
tory liquidity ratio (SLR) would be low- than mandated by RBI. As per the RBI statement, 2015-16, on September
ered to 20.5% by January 2017. As of data, the banking system has 29.33% 29, 2015, it has been decided to
now, banks are mandated to invest of SLR as on October 30, 2015. The progressively bring down SLR by
21.5% of their deposits in government excess investment in government secu- 0.25 per cent every quarter till
securities. rities is primarily due to absence of March 31, 2017 and concurrently
credit demand. Also, most banks hold reduce ceiling on SLR holdings under
According to the new time table SLR 2-3% excess SLR to meet any unex- HTM in alignment with the SLR re-
would be reduced to by 25 basis points pected liquidity shortage. Banks can quirement," RBI said in a state-
to 21.25% as on April 2, 2016. It would borrower from the RBI's repo window ment.
by pledging government securities.
The gradual reduction in SLR re-
RBI liberalises booking of forwards contracts duces the risk of large government
borrowings crowding out the pri-
RBI has allowed all resident individuals, firms and companies, who have actual vate sector investments over the
or anticipated foreign exchange exposures, to book foreign exchange forwards long term, analysts said.
and foreign currency and rupee options contracts up to $1 million without any
requirement of documentation on the basis of simple declaration. "While the
contracts booked under this facility would normally be on a deliverable basis,
cancellation and rebooking of contracts are permitted," RBI said.

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