Reacting to the government decision, Dena Bank chairman M V Nair said that it would address the liquidity related issue of interest rate. He felt that the move would help economy to sustain a high growth and companies would get funds for their economic activities at reasonable rate. His views were endorsed by Punjab National Bank GM Arun Kaul.
A reduction in SLR was also necessitated by the supply of fresh government securities which is less than what is required by banks to meet their SLR requirements. By March 2007, total deposits with the banking sector would be around Rs 25,00,000 crore. As deposit is growing at 20%, the incremental deposits in 2007-08 would be around Rs 5,00,000 crore. If the SLR requirements remained at 25%, banks would require to invest Rs 1,25,000 crore in the government bonds.
LIC and other insurance companies, as well as the public provident fund and the employees' provident fund are also require to invest around Rs 50,000 crore in government securities. Therefore, their demand would be in the range of Rs 2,00,000 crore. This is against the government's net annual borrowing need of around Rs 1,10,000.
A Bill to give effect to the changes brought about by the Ordinance is pending in Parliament.
Source- Times Of India, 12/01/2007
