Statutory Liquidity Ratio (SLR): Meaning, Working and Effects
Why in the news
A March 2025 explainer revisited the Statutory Liquidity Ratio, a basic RBI tool that limits how much of deposits banks can freely lend.
Key facts
- SLR = proportion of NDTL (essentially public deposits) that a bank must park in liquid form.
- Allowed forms: cash, gold and government-approved securities; this portion cannot go into lending or risky investments.
- Rate quoted: 18%, revisited by RBI from time to time.
- Worked example: at 18% on a ₹10,000 deposit, ₹1,800 is set aside and ₹8,200 can be lent; at 20% it is ₹2,000 and ₹8,000.
Why banks keep SLR
- Stability: a cushion against sudden withdrawals.
- Inflation and credit control: RBI raises it when prices run hot and cuts it in a slowdown.
- Government borrowing: ensures steady demand for government bonds.
SLR versus CRR
| Point | SLR | CRR |
|---|---|---|
| Assets allowed | Cash, gold, government securities | Cash only |
| Custody | With the bank | Deposited with RBI |
| Main aim | Liquidity and bank stability | Control of money supply |
Economic effects
- Higher SLR: less lending, higher interest rates, slower business growth.
- Lower SLR: cheaper loans, easier credit, faster expansion and jobs.
Exam angle
- Regulator: Reserve Bank of India.
- SLR base: NDTL.
- CRR is held with RBI in cash; SLR is held by the bank in liquid assets.