What is statuary liquidity ratio(slr) in economics?


What is statuary liquidity ratio(slr)?

The full form of the SLR is – Statutory liquidity ratio. It is the part of the deposits available to the banks, which is mandatory to keep them before issuing a loan on their deposits. It can be in any form, such as cash, gold reserves, government approved securities etc.
Only after the banks keep this proportion safe, they are allowed to issue loans only on their deposits. The Reserve Bank determines how much this ratio (Statutory liquidity ratio) will be.
The maximum limit of SLR in India has been up to 40 percent. It is notable that the Reserve Bank has the right to extend the limit of SLR to banks upto 40%. And SLR can be declared even till minimum of 0 percent. Finally, it depends on the Reserve Bank of India, according to the conditions of economy and market conditions, to what extent it wants to keep between 0 to 40 percent.
However, the good thing is that most commercial banks keep their SLR much higher than the fixed rates by the Reserve Bank. For example, in October 2018, the fixed percentage of SLR on behalf of the Reserve Bank was 19.5 percent, while the SLR made by the co-commercial banks was more than 26 percent.
According to the Reserve Bank’s provisions, after every commercial bank closes its daily business, its net demand deposits (Net Demand) And it is compulsory to secure a certain portion of the Time Liabilities as liquid assets. This liquid assets can be in the form of cash, gold and un-encumbered approved securities.
So, whatever proportion of liquidity assets that are kept in these securities against the bank’s total demand and time liabilities, it is called statutory liquidity ratio (SLR) or statutory liquidity ratio.
Net Demand Liabilities.
Bank accounts from which people can ever withdraw their money. Such as savings accounts and current account.
Time Liabilities.
Bank accounts from which you can not immediately withdraw money. Rather you have to wait for some time as fixed deposit accounts. Also, those who have to pay within the next 1 month period due to the maturity period are also counted under time liabilities.
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