The Reserve Bank of India (RBI) has hiked the SLR ( Statutory Liquidity Ratio) by 1% from 24% to 25%, while other key ratios have been kept unchanged. The move is aimed to keep a check on the inflation rate as it will suck up Rs 30,000 from the banking system. After the RBIs move banks are unlikely to increase rates in auto, home and education loans in the near term. But the RBI has raised the requirement for banks to keep the money aside while lending to this sector from 0.40 per cent to one per cent. This is a move to have provision for the NPAs in this sector.
Our View: Economic downturn had lead to the governments and policy makers world over to be soft on the monetary measures, keeping major rates and ratios low. This move, though not a harsh measure to curb liquidity, is opposite to the trend that the federal banks have taken. But Liquidity is not the only thing which is leading to inflation; there are factors like international commodity prices, crude prices, low agricultural productivity from weak monsoon, and measures should also be taken to address the controllable ones.