With the government proposing to give flexibility to the Reserve Bank of India in fixing prudential limits, bankers expect a cut in statutory liquidity ratio and cash reserve ratio to 15 and 3 per cent respectively, which could increase banks' funding mainly to infrastructure projects.
Government intends to amend Banking Regulation Act and RBI Act to enable the central bank to lower the SLR and CRR of banks. "We are ready with the bill. It will be introduced in the Budget session," economic affairs secretary Rakesh Mohan told PTI on Monday.
The amendments in legislation assume significance, as it would considerably free resources of banks and enable them to step up lending to industry, agriculture and infrastructure sectors, which in turn will spur growth in economy.
Banks have to set aside 25 per cent of their deposits as SLR and another 5 per cent as CRR now.
"There is enough room for reducing SLR," a senior banker said, adding it will not only unlock resources and ensure higher gains from lending, but also reduce opportunity costs.
The RBI has mandated that banks maintain SLRs every day in the form of cash, gold or unencumbered approved securities, as a proportion of total demand and time liabilities.
Expecting pressure on profitability owing to signs of hardening interest rates, he said SLR cut would be beneficial to the banking industry.
Asked to what extend the RBI could reduce SLR, another banker said it was for the banking regulator to decide after considering several factors including money supply, inflation and interest rate scenario. "SLR could be cut to 15 per cent," a banker said.
More from rediff