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RBI plans to reduce minimum investment in Govt securities for banks

By Religare
RBI plans to reduce minimum investment in G securities
The Reserve Bank of India (RBI) on Thursday said it has become necessary to reduce banks' requirements of investing in G-secs in a calibrated way, in order to ensure flow of funds to the productive sectors of economy.

"One of the mandates for the Reserve Bank in the RBI Act is ensuring the flow of credit to productive sectors of the economy. In this context, it is necessary to reduce banks' requirements of investing in G-secs in a calibrated way to what is strictly needed, from a prudential perspective. It is recognised the scope for such reduction will increase as government finances improve. Further, as the penetration of other financial institutions such as pension funds and insurance companies increases, it will be possible to reduce the need for commercial banks to invest in G-Secs," RBI said in its Trend and Progress of Banking in India 2012-13 report.

Currently, banks are required to maintain 24.5 per cent of their deposits in the form of gold or govt. approved securities. This ratio is known as Statutory Liquidity Ratio.

However, RBI also stressed that it will be done gradually so that government's borrowing programme is not affected.

Dion Global Solutions Ltd.

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