Statutory Liquidity 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. The SLR is fixed by the BB and is a form of control over the credit growth in Bangladesh. The government uses the SLR to regulate inflation and fuel growth. Increasing the SLR will control inflation in the economy while decreasing the statutory liquidity rate will cause growth in the economy.
Every scheduled bank has to maintain assets in cash or gold or in the form of un-encumbered approved
securities the market value of which shall not be less than such portion of its total demand and time liabilities as prescribed by BB from time to time. BB may also prescribe the procedure of determination of assets and liabilities and percentages of maintainable assets in
different classes. At present, the required SLR is 13% daily for conventional banks and 5.5%
daily
for
Islamic Shari'ah based banks
and Islamic Shari'ah based
banking
of conventional banks of their average total demand and time liabilities. Banks are advised to follow
the
circular issued by Monetary Policy Department of BB from time to time in this regard.
The SLR is fixed for the below mentioned reasons:
To monitor the
growth of bank credit.
To guarantee commercial banks' solvency.
To compel banks to buy bonds
and
other types of government securities.
To stimulate demand and growth; this is accomplished by lowering the SLR to provide liquidity at commercial banks.
The minimum rate at which a bank can lend money to its customers is determined in large part by the
SLR. This minimum
amount is called the base rate. The Central Bank and other banks can become more
transparent as a result.
In
order to limit bank
credit, the SLR requirement is
raised when inflation
is
high. On the
other hand, during a recession, SLR requirement is lowered to increase bank credit.
If a bank fails to
maintain the
prescribed SLR,
it
is liable
to pay a penalty to
the
Bangladesh Bank.Penalty
will be charged
at
the prevailing Special Repo Rate
on the
amount by which the SLR falls short daily.
(i) Components eligible for calculation
of Statutory Liquidity Reserve:
The eligible components for maintaining Statutory Liquidity
Reserve are cash in tills (both local and foreign currency), gold, daily
excess reserve (excess of Cash Reserve) maintained with BB, balance
maintained with the agent bank of
BB and un-encumbered approved securities,
credit balance in Foreign Currency Clearing Account maintained
with
BB.
Daily excess of Cash
Reserve (if any) will be calculated
using
the
following formula:
Daily excess of Cash Reserve = (Day-end balance of un-encumbered cash maintained in Taka current
accounts with BB
– Required cash
reserve on Bi-weekly average basis).
(ii) Guidelines for use of Foreign Currency from Foreign Currency Clearing Account for SLR
purpose:
Banks may use foreign currency from Foreign Currency Clearing Account maintained with BB for SLR purpose as
long as there
is credit balance
in the account. However, no
interest will be paid on the used portion of foreign currency. Forex Reserve and
Treasury
Management Department (FRTMD) of BB will credit interest on the balance held in the account as usual. After getting the certification from
Department of Off-site supervision (DOS) regarding the actual amount of foreign currency used for SLR purpose, FRTMD will adjust (if required) the interest amount. Banks should take utmost care while reporting the use of foreign currency
in DB-5fc
statement as any
misreporting
regarding the
amount of foreign
currency used for SLR
purpose will attract a penalty two times of the amount of interest already credited for the
misreported amount along with reversal of the interest credited.