SLR: Parekh for 4 pct,Montek disagrees

At present,the lenders have to keep 24 per cent of their deposits as SLR in government securities.

“Banks have been borrowing money from RBI and the Central Government is not spending enough,state governments have huge bank balances. There is a case of looking at (reducing) SLR”,Parekh said while speaking at a book launch function here.

Reducing SLR,he added,was also essential to ensure the operational viability of banks and enhance funding for infrastructure projects in the country.

“The SLR rates were fixed years ago. We have probably the highest SLR in the world. The purpose for SLR was to ensure banks don’t go down. If SLR comes down by 3 to 4 per cent,that much liquidity would be available in the market to fund infrastructure projects,” Parekh said.

However,Ahluwalia said: “Why are you so keen on reducing SLR? If you cut it to zero,banks would still pick up government debt as long as the government is floating debt. Only they will charge higher interest rates”.

He said there was a need to reduce the fiscal deficit in order to fund the requirements of the infrastructure sector,rather than reducing SLR.

“The fact of the matter is,if you want more money available to infrastructure,private sector and others,you need to cut Central and state Government fiscal deficit. If you dont cut the deficit,banks would still go for some debt”,Ahluwalia said.