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

What is Statutory Liquidity Ratio?

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Sujai Adithya
Business Development and Banking & Financial Services Expert

Statutory Liquidity Ratio (SLR) is the government term for the reserve demand that commercial banks are required to maintain in the form of cash, gold reserves, Reserve Bank of India (RBI)3 approved securities before giving credit to the customers. It is directed under Section 24 of the Banking Regulation Act, 1949. 

The SLR is determined by the RBI. It is usually used to control inflation and fuel growth, by increasing and decreasing the money supply. It controls the credit growth in India. The maximum limit of SLR is 40% and the minimum limit of SLR is 0 In India, the RBI always decides the percentage of SLR. If the bank fails to control the required level of the statutory liquidity ratio, then it becomes responsible to pay penalty to Reserve Bank of India (RBI). The current SLR rate in India is 18.25%.

When the SLR is high, banks have less money for commercial operations and hence less money to lend out. When this happens, home loan interest rates often rise. When the SLR is low, similarly, home loan interest rates are likely to fall.

Statutory Liquid Ratio or SLR is the minimum percentage of deposits that a commercial bank has to maintain in the form of Liquid cash, gold or other securities. It is basically the reserve requirement that banks are expected to keep before offering credit to customers.