Statutory Liquidity Ratio
Statutory Liquidity
Ratio or SLR is a 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. These are not reserved with the Reserve Bank of India (RBI), but
with banks themselves. The SLR is fixed by the RBI. CRR (Cash Reserve Ratio)
and SLR have been the traditional tools of the central bank's monetary policy
to control credit growth, flow of liquidity and inflation in the economy. The SLR was prescribed by Section 24 (2A) of
Banking Regulation Act, 1949.
The government uses the
SLR to regulate inflation and liquidity. Increasing the SLR will control
inflation in the economy while decreasing it will cause growth in the economy.
Although, the SLR is a monetary policy instrument of RBI, it is important for the
government to make its debt management program successful. SLR has helped the government to
sell its securities or debt instruments to banks. Most of the banks will be
keeping their SLR in the form of government securities as it will earn them an
interest income.
Cash Reserve Ratio is
the percentage of the deposit (NDTL) that a bank has to keep with the RBI. CRR
is kept in the form of cash and that also with the RBI. No interest is paid on
such reserves.
On the other hand, SLR
is the percentage of deposit that the banks have to keep as liquid assets in
their own vault.
The CRR is a more
active and useful monetary policy tool compared to the SLR. Usually, the RBI
changes CRR to manage liquidity in the economy.