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Friday, Jan 12, 2007
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Ordinance to amend Banking Regulation Act

Special Correspondent

NEW DELHI: The Union Cabinet on Thursday approved an Ordinance to amend the Banking Regulation Act, 1949, besides giving its nod for introduction of the Banking (Amendment) Bill, 2005 in Parliament.

With a view to managing the pressure on liquidity, the move is aimed at empowering the Reserve Bank of India (RBI) to change the floor of the statutory liquidity ratio (SLR), the minimum limit that banks have to keep in the form of approved bonds, cash and gold.

Under the current stipulations of SLR, banks are mandated to 25 % of their total deposits in the form of liquid assets, comprising cash, gold and approved securities, mostly government bonds.

With this ordinance in the Act, the RBI will have more operational flexibility in the conduct of monetary policy by way of being at liberty to decide on the floor for SLR.

Finance Minister P. Chidambaram said that both the RBI and the Government came to the conclusion that the SLR floor of 25 per cent had to be urgently removed. "The RBI can go below the floor, but it is up to the central bank to take a decision on this," he said.

The Cabinet approved a correction in Section 53 of the SEZ Act, which would permit setting up of bank branches in the SEZs. Provisions regulating a bank branch in a SEZ would be incorporated in the Act.

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