Source: Mint
Context:
Banks are selling government securities to fund credit growth as deposit growth lags behind lending demand. RBI data shows the statutory liquidity ratio (SLR)—the share of deposits invested in government and approved securities—fell to 26.5% on 17 October 2025, down from 27.3% a year ago, allowing banks access to nearly ₹26,000 crore in funds.
About Statutory Liquidity Ratio (SLR)
The Statutory Liquidity Ratio (SLR) is the minimum percentage of a bank’s Net Demand and Time Liabilities (NDTL) that must be maintained in the form of liquid assets — such as cash, gold, or approved government securities — before providing credit to customers.
Regulatory Basis:
- Governed under Section 24 of the Banking Regulation Act, 1949.
- The Reserve Bank of India (RBI) prescribes and periodically reviews the SLR requirement.
Current Requirement (as of 2025):
- The minimum SLR is 18% of a bank’s NDTL.
- However, banks often maintain a higher ratio (around 26–27%) to ensure liquidity comfort and meet investment norms for government securities.
Objectives of SLR:
- Ensure Liquidity: Maintains a buffer of liquid assets to meet sudden withdrawal demands.
- Promote Financial Stability: Prevents excessive lending and ensures banks remain solvent.
- Support Government Borrowing: Ensures a steady demand for government securities (G-secs).
- Monetary Policy Tool: RBI adjusts SLR to control money supply, credit growth, and inflation in the economy.
Components of SLR Assets:
- Cash (in hand or with RBI)
- Gold (valued at market price)
- Approved securities — mainly Central and State Government bonds
Reasons Behind SLR Decline:
- Banks typically hold at least 18% of net demand and time liabilities (NDTL) in approved securities, plus an additional buffer of ~10 percentage points.
- Open market operations (OMO) at the start of FY26 allowed banks to offload surplus SLR investments in exchange for liquidity.
- Slower deposit growth compared to credit has prompted banks to tap their SLR holdings to meet lending requirements.
