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April 30, 2002 | 1155 IST
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RRBs to keep entire SLR holding in gilts

BS Banking Bureau

The Reserve Bank of India on Monday said regional rural banks will henceforth be required to maintain their entire statutory liquidity ratio holding in government and other approved securities.

The central bank has allowed these banks time up to March 31, 2003 to convert existing deposits with sponsor banks into government securities.

Hitherto, the RRBs, also known as Grameen banks, were required to maintain SLR at 25 per cent of their net demand and time liabilities in cash or gold or in unencumbered government and other approved securities.

Unlike in the case of scheduled commercial banks, balances maintained in the call or fixed deposits by the RRBs with their sponsor nationalised banks are treated as "cash" and hence, reckoned towards their maintenance of SLR.

This measure is significant as the RBI, after the Ahmedabad-based Madhavpura Mercantile Co-operative Bank went bust in March 2001, had last year asked the urban co-operative banks to unwind their term deposits with bigger co-operative banks and invest only in government securities to fulfill their SLR requirements.

"The Grameen banks currently earn 100 basis points higher interest on the deposits placed by them with the sponsor banks.

"For example, if a nationalised bank pays an interest of eight per cent on a nine month term deposit, the Grameen Bank will earn nine per cent interest.

"The deposits placed by these banks with the nationalised banks are reckoned as SLR. The measure asking Grameen banks to invest in the government and other approved securities is a retrograde one and only aimed at furthering the Centre's borrowing programme," said a senior public sector banker.

"The RRBs deposits with nationalised banks is safe. There is no logic in coming out with this measure," he said.

The 196 Grameen banks have deposits of around Rs 100 billion and nationalised banks will see an outflow of around Rs 25 billion by way of term deposits.

Grameen banks have been floated by the Centre, which holds a 50 per cent stake in them, in the 70s to ensure better credit delivery to the rural masses.

The nationalised banks, which are sponsor banks, hold 35 per cent stake while the state governments hold 15 per cent stake.

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