Statutory Liquidity Ratio (SLR)

Statutory Liquidity Ratio :Statutory Liquidity Ratio (SLR) is the ratio of liquid assets to net demand and time liabilities (NDTL) which each bank is required statutorily to maintain. These liquid assets consist of excess reserves, unencumbered government and other approved securities and current account balance with other banks.

Statutory Liquidity Ratio is determined and maintained by Reserve Bank of India in order to control the expansion of bank credit.

Excess reserves are defined as total reserves (cash on hand plus balances with RBI) minus statutory or required reserves with RBI. Other approved securities are securities that enjoy government’s guarantee in respect of payment of principal and interest. Examples of such securities are bonds of IDBI, NABARD and other development banks, co-operative debentures, debentures of state electricity board, port trusts etc.

The main objectives for maintaining the SLR ratio are the following :
● to control the expansion of bank credit. By changing the level of SLR, the Reserve Bank of India can increase or decrease bank credit expansion.
● to ensure the solvency of commercial banks.
● to compel the commercial banks to invest in government securities like government bonds.

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Updated: December 19, 2017 — 7:53 am

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