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Thursday, June 12, 2014

What is Statutory Liquidity Ratio - SLR?

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What is Statutory Liquidity Ratio - SLR?





Last week, the RBI cut statutory liquidity ratio (SLR) by half a percentage point to 22.5%, effective June 14. By this, the central bank intends to release additional money into the banking system. SLR is the amount of funds that every commercial bank should have either through its holdings in government approved bonds and securities, gold or a combination of these assets. This is another way of ensuring enough liquidity for each bank before they lend to customers. By reducing SLR, the RBI released another half a percentage point of commercial banks' total deposits (in banking parlance, total demand and time liabilities that include FDs, savings and current accounts) to be free for lending to customers, thus increasing liquidity in the system. With extra money to lend, banks may be forced to lower their lending rates.

 

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