What are the uses of the Statutory Liquidity Ratio and how does it impact the investor?

The Statutory Liquidity Ratio2 (SLR) is set for a number of purposes. A few uses of SLR are:

• Controlling the expansion of bank credit by changing the level of SLR, the RBI can increase or decrease bank credit expansion.
• Assuring the safety of commercial banks.
• By decreasing the level of SLR, the RBI can increase liquidity with the commercial banks. As a result, it increases investment. This is done to fuel growth and demand.
• Forcing the commercial banks to invest in government securities like government bonds.

Impact of SLR on the Investor:

The Statutory Liquidity Ratio works as one of the reference rates when RBI has to decide the base rate. The base rate is nothing but the minimum lending rate. No bank can grant funds below this rate. This rate is fixed to assure clarity with respect to borrowing and lending in the credit market. When RBI requires a reserve requirement, it assures that a specific portion of the deposits are safe and are always ready for customers to obtain.