STATUTORY LIQUIDITY RATIO

Statutory Liquidity Ratio (SLR)

The Statutory Liquidity Ratio (SLR) is a prudential measure. As per the Banking Regulations Act 1949, all scheduled commercial banks in India are required to maintain a stipulated percentage of their total Demand and Time Liabilities (DTL) / Net DTL (NDTL) in one of the following forms:

(i) Cash

(ii) Gold, or

(iii) Investments in un-encumbered Instruments that include:

      (a) Treasury-bills of the Government of India.

      (b) Dated securities including those issued by the Government of India from time to time under the market borrowings programme and the Market Stabilization Scheme (MSS).

      (c) State Development Loans (SDLs) issued by State Governments under their market borrowings programme. 

      (d) Other instruments as notified by the RBI. These include mainly the securities issued by PSEs.

While CRR has to be maintained by banks as cash with the RBI, the SLR requires holding of assets in one of the above three categories by the bank itself. The banks which fail to meet its SLR obligations are liable to be imposed penalty in the form of a penal interest payable to RBI. As per the Second Bi-Monthly Monetary Policy Statement 2017-18 of the RBI on June 7th 2017, it has been decided to reduce the statutory Liquidity Ratio (SLR) from 20.5 percent to 20.0 per cent from June 24, 2017.

The SLR is also a powerful tool for controlling liquidity in the domestic market by means of manipulating bank credit. Changes in the SLR chiefly influence the availability of resources in the banking system for lending. A rise in the SLR which is resorted to during periods of high liquidity, tends to lock up a rising fraction of a bank’s assets in the form of eligible instruments, and this reduces the credit creation capacity of banks. A reduction in the SLR during periods of economic downturn has the opposite effect. The SLR requirement also facilitates a captive market for government securities.

Present SLR =19.5%