Short Notes on Statutory liquidity ratio (SLR)
Posted by Ripon Abu Hasnat on Tuesday, September 16, 2014 | 0 comments
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Statutory
liquidity ratio (SLR) refers amount that the commercial banks require to maintain
in the form of gold or govt. approved securities before providing credit to the
customers. Here by approved securities we mean, bond and shares of different
companies. Statutory Liquidity Ratio is determined and maintained by the
Reserve Bank of India in order to control the expansion of bank credit.
It is determined as percentage of total
demand and time liabilities. Time Liabilities refer to the liabilities, which
the commercial banks are liable to pay to the customers after a certain period
mutually agreed upon and demand liabilities are such deposits of the customers
which are payable on demand. Example of time liability is a fixed deposits for
6 months, which is not payable on demand but after six months. example of
demand liability is deposit maintained in saving account or current account,
which are payable on demand through a withdrawal form of a cheque.
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 liabilities (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 main objectives for maintaining the
SLR ratio are the following:
- To control the expansion of bank credit. By changing the level of SLR, the Reserve Bank of India can increase or decrease bank credit expansion.
- To ensure the solvency of commercial banks.
- To compel the commercial banks to invest in government securities like government bonds.
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