Statutory Liquidity Ratio (SLR)

• 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

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).