Are payments banks ready to take the SLR burden off from the shoulders of commercial banks?
Anand Adhikari December 10, 2018
The Reserve Bank of India (RBI) has set in motion a road map for gradual reduction in statutory liquidity ratio (SLR), from the existing 19.5 per cent to 18 per cent, in the next six quarters from January next year. The SLR is the portion of deposits that the banks have to keep in highly liquid government securities. This works as a cushion for banks in case of a bank failure or when in need of liquidity and also helps in government borrowing as banks are big investors in government securities market.
Indian banks historically shared the burden of keeping higher G-Sec as the SLR remained very high. It was as high as 35 per cent in the 70s. In fact, the SLR reached an all time high of 38.25 per cent in 1993. Those were the days when the insurance, pension and other institutional framework were not big enough to absorb the government securities. The government also wanted the banks to keep liquid securities so as to protect the interest of depositors. The SLR remained in 30s till 1997, the post liberalisation period.
The big shift came in the last decade. The RBI later started reducing the SLR, but it had no option but to keep at a higher level of 25 per cent plus because of lack of market for its own G-Sec. In the last decade, the decline in SLR has been more frequent. The new road map for SLR creates a room or banks to lend more.
The RBI has also created new differentiated banks like payments banks, whose objective is financial inclusion with a condition that they have to park a minimum 75 per cent of their deposits in the government securities. At some later stage, these payments banks will take the burden off from the shoulders of commercial banks as they are not allowed to lend. But are payments banks on course to shoulder the responsibility in the near future?