Last Updated : 29 July 2010 at 16:10 IST

'Invest 20% of SLR funds into PSU equiities'

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Commodity Online
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has proposed to the Reserve Bank of India (RBI) to convert 20% of its Statutory Liquidity Ratio (SLR) deposits into equity of Navratna and Mini-Navratnas Public Sector Undertakings (PSUs) to enable nationalized banks to play a decisive role in India’s capital market.

According to rough estimates, the RBI has over Rs.10 lakh crore SLR investments in its possession contributed by scheduled commercial banks, nearing 87 in number. This also includes contributions from private banks in the category of scheduled banks.

The suggested proposal, if accepted by the apex bank will help move `block funds’ into more `mobilizing funds’ and bring down control of capital market from clutches of Foreign Institutional Investors (FIIs).

The ASSOCHAM holds that if a 20% of the estimated SLR is allowed to be converted into PSUs, especially in Navratna and mini-Navratna categories, nearly Rs.2 lakh crore funds are released within the government system for fruitful purposes as PSUs especially profit making need equity absorption to fund their modernization and expansion plans, said ASSOCHAM Secretary General Mr. D S Rawat,

This according to ASSOCHAM will boost up the capital market by pushing up liquidity inflow and gradually enable banking system to play a decisive role in governance of capital market.

The RBI can make an offer to leading PSUs to absorb part of its SLR deposits and help Indian banking system to directly become part of their growth as PSUs do need funds.

This conversion option would suit the PSU best under the given circumstances and reduce their dependence of loans from other agencies especially multi and bilateral financial institutions and in course of time fetch banking system through RBI higher assured returns.

In addition, the ASSOCHAM has also suggested modifications in the Employees Provident Fund Act so that a part of investments made by its subscribers both in public and private sector is allowed to be directly invested to PSUs equity by the Employees Provident Fund Organizations at the time of their maturity.

This move will take care to some extent post retirement needs of EPFO subscribers for certain assured return. The option of allowing EPFOs to invest into PSU equity should be entirely left on subscribers but in view of ASSOCHAM it could be 25% of the total amount. Remaining 75% should straightway be disbursed to subscriber at the time of his retirement to take care of his other urgent needs.