In December 2018 policy, the limelight was stolen by a series of measures introduced to ensure banks credit growth. Today, a key development by RBI packs some really good news for borrowers! However, it is not a great sign as far as banks are concerned. RBI had stated several times, that banks are not passing the benefits of reductions in RBI policy repo rate to borrowers. Well, now banks are trapped, and RBI has brought in a major relief for borrowers. Currently policy  repo rate stands unchanged at 6.50%. Consequently, the reverse repo rate under the LAF remains at 6.25%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.

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One of the key development made by RBI was to align the SLR with the LCR requirement, it is proposed to reduce the SLR by 25 basis points every calendar quarter until the SLR reaches 18 per cent of NDTL. The first reduction of 25 basis points will take effect in the quarter commencing January 2019.

As per the existing road map, scheduled commercial banks have to reach the minimum Liquidity Coverage Ratio (LCR) of 100 per cent by January 1, 2019. 

Presently, Statutory Liquidity Ratio (SLR) is 19.5 per cent of Net Demand and Time Liabilities (NDTL). 

Further, the assets allowed to be reckoned as Level 1 High Quality Liquid Assets (HQLAs) for the purpose of computing the LCR of banks, inter alia, includes (a) Government securities in excess of the minimum SLR requirement; and (b) within the mandatory SLR requirement, Government securities to the extent allowed by RBI under (i) Marginal Standing Facility (MSF) - presently 2 per cent of the bank's NDTL and (ii) Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) - presently 13 per cent of the bank's NDTL. 

Talking about the cut in SLR announced by RBI today, Rajesh Sharma, MD , Capri Global Capital Limited said, "RBI has adopted a cautious approach and held on to rates. Reducing SLR requirement from next quarter onwards is a welcome move. Some more measures like reducing risk weight specifically for NBFC lending to MSME sector to boost confidence in NBFCs would have triggered positive sentiment in the sector ."

As part of the Developmental and Regulatory Policies two decisions are of note: (1) external benchmarking of new floating rate banks’ loans (benchmarked to repo rate or 91day T-bill or 182day T-bill or any benchmark rate produced by FBIL) effective April 1, 2019, and (2) reduction in SLR by 25 bps each quarter to 18% (currently at 19.5%) starting quarter commencing January 2019 in order to align the SLR with LCR requirements, explains Kotak Institutional Equities. 

This means there will be no more MCLR, Base rate, prime lending rate and BPLR. In fact, bank will now have no opportunity to change interest rate of old borrowers, while hiking the lending rates in near-term future. 

Did you know SLR will help bring down your EMIs? How? Let's find out. 

Apart from Cash Reserve Ratio (CRR), banks are needed to hold a certain percentage of NDTL in forms of securities like government bonds, gold, cash, etc.

This certain portion is called as SLR – which is done to ensure banks have enough of funds available to pay back to its customers who may have an immediate requirement to encash their deposits.

In case of lower SLR, banks have higher ability to give credit which means further room for a cut in home loan, vehicle loan and personal loan interest rates. Also now that MCLR benchmark is going to be eliminated from April 2019, banks will have better room for reducing loan rates making them attractive for customers. 

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If lending rates come down, hence, your EMIs will also be lower. Isn't it a good news!

The bank deposits have grown by 3.5% between March and November 9th as against 0.7% growth in the comparable period previous year. 

Bank credit growth has improved further in the current fiscal. The bank credit off take (y-o-y) as on 9th Nov’18 was at a 5 year high of 14.9%. On an incremental basis (1Apr- 9 th Nov’18), bank credit growth is 5.6% compared with the 0.6% growth in the comparable period in the previous year.