RBI cuts SLR by 2.5% for finance companies

Saturday, May 3 1997

RBI cuts SLR by 2.5% for finance companies

ENS ECONOMIC BUREAU

MUMBAI, May 2: The Reserve Bank of India (RBI) has cut the statutory liquidity ratio (SLR) requirements for non-banking finance companies (NBFCs) by 2.5 % to 10 % from 12.5 %. The SLR requirement of loan and investment companies as well as residual finance companies has also been amended by the central bank. The RBI has directed the NBFCs to maintain SLR on a quarterly basis, rather than on a daily basis.

Consequently, NBFCS will be able to assess the need for investments sufficiently in advance and comply with the requirement of maintaining SLR on a quarterly basis. A statement from the RBI has said that the NBFC will be required to maintain liquid assets equivalent to 10 % of their deposit liablities in the specified approved securities like the government securities and the government-backed bonds.

While the SLR requirements by loan and investment companies have been reduced to 5 % from 7.5 %, the residuary finance companies have been directed to maintain SLR ``of not less than 10 %''.

The RBI decision has been welcomed by the NBFCs as the move will help them improve their bottomlines and profitabilty. According to industry sources, the move will release about Rs 250 crore.

The finance companies can now deploy these funds in corporate finance and earn a return of 19-20 % or increase their activities in consumer finance which will ensure a return of 21-22 % which is much higher than the 10-11 % that government securities or government-backed bonds used to yield.

The ReserveBank has also done away with the requirement by NBFCs with regard to making investments of two and a one-half per cent or five per cent of the deposits in other specified assets like balances with banks and trustees securities.

In the release the Reserve Bank has maintianed that it has powers to impose penalty at the rate of three per cent per annum above the bank rate on the amount of shortfall on any day during the quarter and if the shortfall continues in the subsequent quarters at five per cent per annum above the bank rate on the amount of shortfall for each subsequent quarter.