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.