- SLR is the minimum percentage of a commercial bank’s net demand and time liabilities (NDTL) that it must maintain in the form of:
- Liquid cash
- Gold
- Approved government securities
- These reserves are not kept with the RBI, but maintained by the banks themselves.
- The SLR is set and regulated by the RBI under Section 24(2A) of the Banking Regulation Act, 1949.
Purpose and Importance of SLR
- Monetary Policy Tool: Helps RBI regulate liquidity, credit growth, and inflation.
- Inflation Control:
- Increasing SLR reduces the availability of funds with banks, curbing inflation.
- Decreasing SLR frees up funds for lending, boosting economic growth.
- Government Debt Management:
- Banks buy government securities to meet SLR requirements, helping the government raise funds.
- Earning Interest:
- Unlike CRR, the portion kept as SLR in government securities earns interest income for banks.
Difference Between SLR and CRR
| Aspect | SLR (Statutory Liquidity Ratio) | CRR (Cash Reserve Ratio) |
|---|---|---|
| Definition | Minimum percentage of deposits to be kept in liquid assets by the bank itself | Minimum percentage of deposits to be kept as cash with RBI |
| Form | Cash, gold, or approved government securities | Only cash |
| Held With | Maintained by the bank in its own vaults | Maintained with RBI |
| Interest | Banks earn interest on government securities kept as SLR | No interest is paid on CRR reserves |
| Flexibility | Used to manage liquidity and support government borrowing | More actively used for controlling liquidity and inflation |
Overview
- SLR = % of deposits banks must hold in liquid assets.
- Helps control inflation, liquidity, and supports government debt.
- Higher SLR = Lower lending capacity = Inflation control.
- Lower SLR = More funds for loans = Boost to growth.
- Difference from CRR: SLR earns interest (held with banks), CRR does not (held with RBI).
