How many forms of financial repression?

The Statutory Liquidity Ratio, or SLR, in which banks have to hold 20.5% of Net Demand and Time Liabilities, or NDTL, is a form of financial repression, writes Russell A Green, formerly a US Treasury atache to India. SLR is a portion of total deposits by customers that banks are required to hold in gold or government securities. To make up for shortfall in revenue the government needs to borrow from the market, which it does by selling bonds, through the Reserve Bank. This year's budget projects total borrowing at Rs 3.48 trillion. Banks buy these bonds as part of their SLR obligations. When interest rate falls, as it has done, from 8% in January 2014 to 6.25% today, prices of bonds go up. Which means that banks in India are sitting on huge capital gains. "Indian banks are sitting on a gold mine. They hold ridiculous amounts of government bonds, and three years of falling rates have increased the value of these bonds by about 10%," writes Green. How much money is that? "If my assumptions are correct, banks are sitting on as much as Rs 2.3 trillion in unrecognized capital gains," calculates Green. In December, the Reserve Bank warned that Gross Non-Performing Assets, or GNPA, as bad loans are called, will rise from 9.1% in September 2016 to 9.8% in March 2017 to 10.1% in March 2018. GNPAs of public sector banks could rise to 12.9% by March 2018. "Credit rating agency Fitch determined they would need Rs 6 trillion from 2017-19." If banks sold these bonds and realised their capital gains they could clean up their books and could increase lending for productive investments. "Despite its name, the SLR has almost no prudential rationale. It represents financial repression, ensuring captive market to lend to the government," writes Green. That means the government is forcing banks to buy its bonds at higher prices with the money we have deposited in banks. Why? Because of wasteful government expenditure. Capital expenditure, which is productive spending on infrastructure, was 40% of the budget in 1970s, 30% in 1990s, and has dropped to just 12% now. By contrast wasteful Revenue expenditure, which is made up of salaries, handouts and interest payments on government debt, has increased to 88% of total spending. Rs 2.61 billion has been set aside for ministers' pay and travel costs.  Another financial repression encouraged by the government is mis-selling of life insurance policies. Rs 5.1 trillion of life insurance premiums are invested in central government securities and another Rs 10 trillion in state government papers. People lost over Rs 600 billion in 2012-13 in lapsed policies. Forcing the RBI to maintain low real interest rates is a recurring form of financial repression. Our fellows are expert at repression. Good we don't know.