Banking & Financials News

RBI may reduce proportion of banks’ bond holdings

The Reserve Bank of India (RBI) is planning to reduce the proportion of banks’ bond holdings. Banks can hold 25% of their deposits to maturity, while they have to invest 23% of their deposits in securities issued by the finance ministry and other approved notes under the Statutory Liquidity Ratio, according to media reports.

The hold-to-maturity rules guard banks from losses and encourage them to invest in government debt. The 10-year benchmark bond yield closed up 3 bps at 7.91% on 4^th February, compared to the previous week’s close of 7.88%, after moving in the tight range of 7.85% to 7.91%.

Bond yields fell initially during the week as dealers anticipated cut in key policy rates ahead of the RBI monetary policy review, scheduled on Tuesday.

Bond yields closed marginally lower after the RBI cut interest rates by 25 bps, for the first time in nine months. However, the central bank’s cautious stance on future policy disappointed investors.

AARTI
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