The Reserve Bank of India's (RBI) move last week to cut the statutory liquidity ratio (SLR) is credit positive for banks, Moody's Investors Service has said.
This is because it will provide them (banks) with greater flexibility to manage liquidity and improve profitability, the global credit rating agency said in a recent note.
On Tuesday last, RBI had reduced SLR from 22 per cent to 21.5 per cent. SLR is the minimum amount of government securities that banks must hold as a per cent of their deposits.
The reduction in SLR will also make it easier for banks to comply with the RBI's liquidity coverage ratio (LCR) norms, according to Moody's.
With the latest reduction in SLR, the amount of eligible securities for LCR computations will increase, Moody's has said.
RBI's move is the latest in a series of SLR reductions that have totalled 350 basis points since 2010. The central bank has indicated more SLR reductions may be forthcoming.