Banks’ SLR investment rises faster than credit growth

Banks’ investments in government securities which come under the purview of statutory liquidity ratio...

Written by ENS Economic Bureau | Mumbai | Published:January 19, 2009 12:22 am

Banks’ investments in government securities which come under the purview of statutory liquidity ratio (SLR) — portion of deposits to be invested in govt securities — have been rising faster than credit growth.

According to the Reserve Bank of India,total investment in SLR securities was Rs 10,04,793 crore as on September 12,2008. This has now gone up by 14.34 per cent to Rs 11,48,244 crore as on January 2,the RBI’s weekly statistical supplement says.

On the other hand,credit offtake has showed a rise of only 6.70 per cent — from Rs 24,91,248 crore to Rs 26,58,997 crore — during the same period. Rising credit risk and the economic slowdown seem to be preventing banks from going all out to woo borrowers. Many private banks have slowed down their personal loan disbursements,banking circles said.

“Even as some public sector and private sector banks have cut lending rates in response to the Reserve Bank’s monetary policy stance,concerns over rising credit risk together with the slowing of economic activity appear to have moderated credit growth,” the RBI also admitted recently.

Some of the banks which came out with third quarter results showed a steep rise in non-performing assets. The Reserve Bank continues to urge banks to monitor their loan portfolio and take early action,including debt restructuring where warranted,to prevent the rise of bad assets down the road and safeguard the gains of the last several years in improving asset quality. But banks are extra cautious.

The cumulative amount of primary liquidity made available to the financial system through various measures initiated by the Reserve Bank is over Rs 3,00,000 crore. This sizeable easing has ensured a comfortable liquidity position starting mid-November as evidenced by a number of indicators. But this money seems to be moving into SLR investments — and to borrowers.

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