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SLR cut will have no material impact: experts

The Reserve Bank of India’s (RBI) decision to lower statutory liquidity ratio (SLR) of banks by one per cent will have no impact either on the liquidity front or on interest rates but will only harden the bond yield, say industry experts.

‘This reduction (in SLR), in principle, increases banks' resources that are lendable to the private sector by Rs 65,000 crore. In reality, whether such an increase in lendable resources translates into higher lending depends on a host of other factors,’ Siddhartha Sanyal, chief economist at Barclays India, said.

Citi India chief economist Rohini Malkani said the 100 bps SLR reduction should reduce ‘forced’ demand from banks by about Rs 65,000 crore a day.

Notably, banks on an average hold 29 per cent of their deposits in SLR which fetch 7.75 to 8 per cent yield but without any risks like lending to corporates.

Kotal Mahindra Bank chief economist Indranil Pan said the SLR cut will have no impact in the short-to-medium term as the SLR holding in the system averages at around 30 per cent, well above the mandate.

‘There will not be any immediate benefits out of the SLR cut because given the growth outlook, credit rise is expected to soften from the current momentum. And with the risk of NPAs rising, banks may be hesitant on taking higher exposures to the private sector, implying that the investments into government risk-free securities are unlikely to come off,’ Pan argued.  
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