RBI may cut lenders' key debt ratio next fiscal year - deputy

COLOMBO Sat Feb 2, 2013 4:56pm IST

A police officer stands guard in front of the Reserve Bank of India (RBI) head office in Mumbai April 17, 2012. REUTERS/Vivek Prakash/Files

A police officer stands guard in front of the Reserve Bank of India (RBI) head office in Mumbai April 17, 2012.

Credit: Reuters/Vivek Prakash/Files

Related Topics

COLOMBO (Reuters) - The Reserve Bank of India is considering cutting the held-to-maturity (HTM) ratio for lenders starting in April, while also looking into bond purchases via open market operations in the next two months to improve liquidity, a top official said on Saturday.

A cut in HTM - which is a type of debt that banks must be hold till maturity - is aimed at spurring banks to lend more and boost a sluggish economy poised to grow at its slowest pace in a decade.

The limit is currently set at 25 percent but traditionally has been aligned with the banks' statutory liquidity ratio (SLR), or the mandated portion of deposits which banks must invest in government bonds and other approved securities, which is currently at 23 percent.

"Maybe we can do it in a phased manner, quarterly basis, half yearly basis till the time it is phased out," RBI deputy governor H.R. Khan told Reuters on the sidelines of a conference in Colombo, regarding reducing the gap between the SLR and HTM ratios.

"Implementation could be from early next year," he added, referring to the fiscal year that starts in April.

The RBI uses several tools to manage the country's persistent cash deficit, including requiring banks to hold onto different categories of debt via the HTM and SLR ratios or buying bonds from investors. The HTM can be reshuffled after obtaining the central bank's permission.

The RBI had said in October it was looking into a recommendation from a central bank committee to cut the HTM ceiling, bringing it in line with the SLR.

Traders have said a reduction in the HTM limit could hit bond prices, given debt supply would increase as banks would be allowed to sell some of their tied-up securities.

Concerns about India's liquidity deficit have been exacerbated in recent days as the government has been cutting spending to meet its fiscal deficit target of 5.3 percent for the fiscal year ending in March.

As a result, India's bond yields rose to a near one-month high on Friday.

The RBI on January 29 cut the cash reserve ratio (CRR), yet another liquidity tool through which the central bank sets the amount of cash deposits that lenders must hold.

However, the action disappointed investors, who had hoped the RBI would also inject liquidity via bond purchases conducted through open market operations (OMOs), which would most directly benefit debt markets.

Khan said the RBI could still resort to OMOs in February and March, the last two months of the current fiscal year, and was watching government spending.

"As things pan out we will see and if it is becoming a pattern we will do OMOs in addition to CRR," Khan said referring to reduced government spending.

"There could be OMOs in the next 2 months," he added.

(Reporting by Archana Narayanan; Writing by Rafael Nam in MUMBAI; Editing by Sanjeev Miglani)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS SHOWCASE

Photo

RBI Policy Review

RBI keeps rates on hold, warns on inflation  Full Article 

China iPhone Sale

China iPhone Sale

China regulator approves Apple's iPhone 6 for sale in China  Full Article 

Cleanliness Drive

Cleanliness Drive

Modi orders officials to clean loos on Gandhi's birthday.  Full Article 

Jaitley's Health

Jaitley's Health

Finance Minister Jaitley in isolation ward, may skip U.S. trip.  Full Article 

China Factory

China Factory

China final HSBC PMI steady in September on stronger global demand but risks remain  Full Article 

Vadodara Violence

Vadodara Violence

Police arrest 140 for religious clashes in Vadodara as Modi tours U.S.  Full Article 

Japan Economy

Japan Economy

Economy takes another hit as spending, factory output fall  Full Article 

AIG Bailout

AIG Bailout

Six years after AIG bailout, trial asks: was it legal?  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage