Statutory Liquidity Ratio or SLR is a minimum percentage of deposits that a commercial bank has to maintain in the form of liquid cash, gold or other securities. It is basically the reserve requirement that banks are expected to keep before offering credit to customers. The SLR is fixed by the RBI.
What is SLR and why RBI uses it?
RBI employs SLR regulation to have control over the bank credit. SLR ensures that there is solvency in commercial banks and assures that banks invest in government securities.
What is the definition of the Statutory Liquidity Ratio?
Statutory Liquidity Ratio. Definition: The Statutory Liquidity Ratio (SLR) refers to the proportion of deposits the commercial bank is required to maintain with them in the form of liquid assets in addition to the cash reserve ratio. In the definition, the liquid assets are the assets readily convertible into cash, includes government bonds,…
What is Statutory Liquidity Ratio ( SLR ) in India?
SLR is that portion of deposits which banks have to hold with themselves in highly liquid government securities. Statutory liquidity ratio (SLR) is the term for mandatory reserve requirement that the commercial banks in India require to maintain in the form of cash, government approved securities before providing credit to the customers.
What happens if RBI reduces the Statutory Liquidity Ratio?
By reducing the level of SLR, the RBI can increase liquidity with the commercial banks, resulting in increased investment. This is done to fuel growth and demand. If any Indian bank fails to maintain the required level of the statutory liquidity ratio, then it becomes liable to pay penalty to Reserve Bank of India.
Why are gilts included in Statutory Liquidity Ratio?
This restriction is imposed by RBI on banks to make funds available to customers on demand as soon as possible. Gold and government securities (or gilts) are included along with cash because they are highly liquid and safe assets.
