SLR under the Held to Maturity (HTM) category

SLR under the Held to Maturity (HTM) category

Subject: Economy

Section: Monetary Policy

Context:

The Reserve Bank of India (RBI) has enhanced the limit for banks to park Statutory Liquidity Ratio (SLR) securities such as Government Securities (G-Secs) in the Held to Maturity (HTM) category from 22 to 23% of NDTL or Net Demand and Time Liabilities, in the backdrop of the huge ₹14.31-lakh crore government borrowing programme in FY23.

Impact?

• Reduce the cost of borrowing– allowing banks to buy G-Secs aggregating up to ₹1.70-lakh crore without worrying about investment depreciation provision in the current rising yield scenario. Thus, reduce the bond supply relative to demand causing the bond price to rise and its yield to fall.
• Reduce liquidity and inflation -banks buy Gsec in exchange pating liquidity held on their part to the Government.

Concept:

The entire investment portfolio of the banks (including SLR securities and non-SLR securities) are classified under three categories viz.

•  ‘Held to Maturity’,
• ‘Available for Sale’ and
• ‘Held for Trading’.

Held-to-maturity securities are debt security investments which the holder has the intention and ability to hold until a specific date of maturity. The investments classified under HTM need not be marked to market and will be carried at acquisition cost, as subsequent changes in market value are ignored because the return is predetermined that the increase in HTM

Thus, raising the limit by 1 per cent could create an additional headroom of ₹1.6-1.7-lakh crore for banks to hold the government securities, without marking them to market in a rising bond yield scenario and thereby preventing any loss.