SLR, or Statutory Liquidity Ratio, for banks is essentially the portion of a bank's deposits they must hold in liquid assets.
Here's a breakdown:
Understanding Statutory Liquidity Ratio (SLR)
The Statutory Liquidity Ratio (SLR) is a crucial tool used by central banks to control credit and ensure the solvency of commercial banks. According to provided information, SLR is:
- Definition: The minimum percentage of deposits that a commercial bank has to maintain in the form of liquid cash, gold, or other securities.
Key Aspects of SLR:
- Purpose:
- Controls credit expansion by limiting the amount of money banks can lend.
- Ensures banks have enough liquid assets to meet their obligations.
- Helps the central bank manage inflation.
- Components: Banks can maintain their SLR in the following forms:
- Cash
- Gold
- Government Securities (Treasury Bills, dated securities)
- Impact: A higher SLR means banks have less money available for lending, potentially slowing down economic growth. Conversely, a lower SLR increases the money supply and can stimulate economic activity.
