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Full Form Of SLR, What Is Full Form Of SLR ?

The full form of SLR is Statutory Liquidity Ratio. SLR is the amount of liquid assets such as precious metals or other approved securities, that a financial institution must maintain as reserves.  SLR rate is determined and maintained by the Reserve Bank of India (RBI) in order to control the expansion of bank credit. The SLR is determined as a percentage of total demand and time liabilities. Time liabilities refer to the liabilities which the commercial banks are liable to repay to the customers after an agreed period, and demand liabilities are customer deposits which are repayable on demand. An example of a time liability is an 11-month FD (fixed deposit) which is payable only after 11 months and not on demand. An example of a demand liability is a deposit maintained by a customer in the form of a saving account or current account that is payable on demand.


SLR is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. Thus, we can say that it is ratio of cash and some other approved liability (deposits). It regulates the credit growth in India. The liabilities that the banks are liable to pay within one month's time, due to completion of maturity period, are also considered as time liabilities. The maximum limit of SLR is 40% and minimum limit of SLR is 0 In India, Reserve Bank of India always determines the percentage of SLR. There are some statutory requirements for temporarily placing the money in government bonds. Following this requirement, Reserve Bank of India fixes the level of SLR. However, as most banks currently keep an SLR higher than required (>26%) due to lack of credible lending options, near term reductions are unlikely to increase liquidity and are more symbolic. The SLR is commonly used to control inflation and fuel growth, by decreasing or increasing the money supply. Indian banks' holdings of government securities are now close to the statutory minimum that banks are required to hold to comply with existing regulation. When measured in rupees, such holdings decreased for the first time in a little less than 40 years (since the nationalization of banks in 1969) in 2005–06. It is 18.25 percent as on January 2019.

Components of Statutory Liquidity Ratio are:-

Section 24 and Section 56 of the Banking Regulation Act 1949 mandates all scheduled commercial banks, local area banks, Primary (Urban) co-operative banks (UCBs), state co-operative banks and central co-operative banks in India to maintain the SLR. It becomes pertinent to know in detail about the components of the SLR, as mentioned below.

·       Liquid Assets:- These are assets one can easily convert into cash – gold, treasury bills, govt-approved securities, government bonds, and cash reserves. It also consists of securities, eligible under Market Stabilisation Schemes and those under the Market Borrowing Programmes.

·       Net Demand and Time Liabilities (NDTL):- NDTL refers to the total demand and time liabilities (deposits) of the public that are held by the banks with other banks. Demand deposits consist of all liabilities, which the bank needs to pay on demand. They include current deposits, demand drafts, balances in overdue fixed deposits, and demand liabilities portion of savings bank deposits.

·       SLR Limit:- SLR has an upper limit of 40% and a lower limit of 23%.

Objectives of Statutory Liquidity Ratio

·       To curtail the commercial banks from over liquidating: A bank/financial institution can experience over-liquidation in the absence of SLR when the Cash Reserve Ratio goes up, and the bank is in dire need of funds. RBI employs SLR regulation to have control over the bank credit. SLR ensures that there is solvency in commercial banks and assures that banks invest in government securities.

·       To increase or decrease the flow of bank credit: The Reserve Bank of India raises SLR to control the bank credit during the time of inflation. Similarly, it decreases the SLR during the time of recession to increase bank credit.