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RBI Cuts SLR by 100 bps in Credit Boost

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The Reserve Bank of India has announced a one percentage point cut in the statutory liquidity ratio (SLR) in four equal stages by January 2017, giving banks more room to step up lending as credit demand picks up amid the economic revival gathering pace.
SLR refers to the government securities that banks have to mandatorily hold. As of now, banks need to invest 21.5% of their deposits in government securities.
The following is the timetable for the SLR reduction: 21.25% on April 2, 2016 21% on July 9, 2016 20.75% on October 1, 2016 20.50% on January 1, 2017.Most banks have SLR in excess of what's mandated. As per RBI data, the banking system had a collective SLR of 29.33% on October 30. The excess investment in government securities is primarily due to absence of credit demand. Also, most banks hold 2-3% excess SLR to meet any unexpected liquidity shortage. Banks can borrow from the RBI's repo window by pledging government securities.
The Economic Times, New Delhi, 11th Dec. 2015

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