MUMBAI: Reserve Bank of India governor Raghuram Rajan did his bit to support the Modi government’s growth plans by releasing over Rs 39,000 crore of funds locked in government bonds. The RBI , in its bi-monthly policy on Tuesday, cut by half a percentage point to 22.5% the mandatory statutory liquidity ratio (SLR), which prescribes the extent of bank deposits that must be invested in government bonds.In keeping with expectations, Rajan left the repo rate unchanged at 8%. It’s the rate at which the RBI lends to banks. The governor appears to have taken a pragmatic decision by holding his own on rates but at the same time addressing concerns of the finance ministry of adequate credit to businesses by releasing liquidity. The biggest beneficiaries of the move will be private banks and foreign banks who are close to the statutory limit on SLR. Banks have invested Rs 22.9 lakh crore in G-secs, which is over 29% of their deposits of Rs 78.9 lakh crore. Given that banks are already over-invested, an immediate increase in liquidity and reduction in rates is unlikely. But the SLR cut will give them headroom to sell G-secs and increase lending if credit demand picks up.The dovish tone in the policy statement and the easing of liquidity might prompt some undecided banks to cut rates. The country’s largest lender, SBI, will review rates in its asset-liability committee meet in a few days. Although Rajan continued to be cautious on inflation, he balanced concerns by stating that the decisive election result, together with improved sentiment should create a conducive environment for comprehensive policy actions and a revival in aggregate demand as well as a gradual recovery of growth.With credit growth slackening a bit in the first quarter, banks are already looking at ways to boost retail credit. ICICI Bank cut home loan rates as recently as May 19. The policy was silent on the asset quality of banks but bankers say that concerted efforts by the government would assuage some of RBI’s concerns. On Tuesday, in a meeting with the finance ministry, banks raised the issue of getting promoters to bring in more equity.“The significance of this policy is less about the immediate impact and more about what it signals. The message is significant as it indicates that as credit goes up banks are free to liquidate their SLR portfolio,” said Naina Lal Kidwai, chairman, HSBC India. According to Kidwai this is also part of reform process as pre-emption of deposits in the form of SLR is highest in India compared to other countries.Many see the accommodative nature of the monetary policy as a message from Rajan that he is willing to work with the government to support growth plans. “RBI extended a welcoming hand to the new prime minister. While reiterating their goal of bringing headline CPI down to 8% by January, officials noted that the risks around this target remain balanced,” said Frederic Neumann Co-Head of Asian Economic Research, HSBC.Rajan said that the first quarter continued to be sluggish and the outlook for agriculture is clouded by the meteorological department’s forecasts of a delay in the onset of the south-west monsoon with a 60% chance of the occurrence of El Nino.On inflation, the governor said that while El-Nino and geopolitical situation was a threat to food prices, these risks were balanced by the possibility of stronger government action on food supply and better fiscal consolidation as well as the pass-through of recent exchange rate appreciation. “Accordingly, at this juncture, it is appropriate to leave the policy rate unchanged, and to allow the disinflationary effects of rate increases undertaken during September 2013-January 2014 to mitigate inflationary pressures in the economy,” Rajan said.