Industry Odisha Bureau, May 18: In a bid to prop up loan growth since the volume of deposits is reportedly lagging behind, the public sector banks (PSBs) are reportedly opting for using their respective ‘surplus liquidity (funds)’ already available with them along with borrowing ‘short-term loans’ from the Reserve Bank of India (RBI).
Notably, “The RBI lays stress on maintaining a minimum percentage of a commercial bank’s ‘Net Demand and Time Liabilities’ (NDTL) in the form of liquid assets like gold, cash and government-approved securities referred as Statutory Liquidity Ratio (SLR). SLR is mandated by the RBI to ensure liquidity, control credit flow, and maintain financial stability. Unlike the Cash Reserve Ratio (CRR), SLR is maintained by the banks themselves, not with the RBI. The current SLR in India is 18 per cent, and RBI can adjust it up to 40 per cent to regulate money supply and inflation.”
Moreover, “The Liquidity Coverage Ratio (LCR) is a regulatory standard that requires banks and financial institutions to maintain a minimum level of High-Quality Liquid Assets (HQLA) to cover their total net cash outflows over a 30-day period during a financial stress scenario. Introduced uder the Basel III Framework after the 2008 financial crisis, the LCR ensures banks can withstand short-term liquidity shocaks without external assistance, thereby promoting financial stability.”
So far the main goal of LCR is concerned, “It prevents liquidity shortages and reduce the risk of insolvency during periods of financial stress. By holding assets that can be quickly converted into cash, banks maintain a buffer that allows RBI time to respond to crises. This mechanism also helps maintain public confidence in the banking sytem.”
Hence, financial analysts and experts in money matters opine, “Unless and until the deposit mobilisation scenario improves, credit growth could start pacing down due to liquidity constraints. Thus, PSBs will find it difficult to sustain loan growth sans a deposit momentum recovery.”
