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RBI MAY CUTLENDERS' KEYDEBT RATIO NEXTFISCAL YEAR:DEPUTY

RASHI WARAICH

BBA 4TH SEM

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COLOMBO: The Reserve Bank of India is consideringcutting the held-to-maturity (HTM) ratio for lenders

starting in April, while also looking into bond purchases

via open market operations in the next two months to

improve liquidity, a top official said on Saturday.

A cut in HTM - which is a type of debt that banks must

be hold till maturity - is aimed at spurring banks to lend

more and boost a sluggish economypoised to grow at its

slowest pace in a decade

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The limit is currently set at 25 per cent but traditionallyhas been aligned with the banks' statutory liquidity ratio

(SLR), or the mandated portion of deposits which banks

must invest in government bonds and other approved

securities, which is currently at 23 per cent.

"Maybe we can do it in a phased manner, quarterly basis,

half yearly basis till the time it is phased out," RBI deputy

governor HR Khan told Reuters on the sidelines of a

conference in Colombo, regarding reducing the gapbetween the SLR and HTM ratios.

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The RBI uses several tools to manage the country's

persistent cash deficit, including requiring banks to holdonto different categories of debt via the HTM and SLR

ratios or buying bonds from investors. The HTM can be

reshuffled after obtaining the central bank's permission.

The RBI had said in October it was looking into a

recommendation from a central bank committee to cut the

HTM ceiling, bringing it in line with the SLR.

Traders have said a reduction in the HTM limit could hitbond prices, given debt supply would increase as banks

would be allowed to sell some of their tied-up securities.

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Concerns about India's liquidity deficit have beenexacerbated in recent days as the government has been

cutting spending to meet its fiscal deficit target of 5.3

percent for the fiscal year ending in March.

As a result, India's bond yields rose to a near one-monthhigh on Friday.

The RBI on January 29 cut the cash reserve ratio (CRR),

yet another liquidity tool through which the central banksets the amount of cash deposits that lenders must hold.

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However, the action disappointed investors, who had

hoped the RBI would also inject liquidity via bondpurchases conducted through open market operations

(OMOs), which would most directly benefit debt

markets.

Khan said the RBI could still resort to OMOs inFebruary and March, the last two months of the current

fiscal year, and was watching government spending.

"As things pan out we will see and if it is becoming a

pattern we will do OMOs in addition to CRR," Khan saidreferring to reduced government spending. "There could

be OMOs in the next 2 months," he added.

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