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Sujai Adithya
Business Development and Banking & Financial Services Expert
Asked a question 10 months ago

What are the objectives and components of the Statutory Liquidity Ratio?

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Sujai Adithya
Business Development and Banking & Financial Services Expert

Main objectives of Statutory Liquidity Ratio2 are :

  • To control the money supply in the economy.
  • Through SLR, the Central Bank forces the commercial banks to invest in government securities.
  • To support the RBI to assure the safety of a commercial bank2.
  • To control the expansion of Bank Credits. RBI can increase or decrease bank credit expansion by changing the SLR rates.

There are three major components of the Statutory Liquidity Ratio:

  • Liquid Assets: 

These are assets one can easily convert into cash – gold, govt-approved securities, cash reserves, treasury bills, and government bonds.

  • Net Demand Liabilities:

It is like your Current and Saving Bank accounts from which you can withdraw your money at any time.

  • Time Liabilities:

It is like your Fixed Deposit Bank Accounts where you cannot immediately withdraw your money but have to wait for a certain period.

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