Glossary term
Statutory Liquidity Ratio (SLR): Meaning and Definition
Reviewed and approved by Dr. Anamika ShrivastavaPublished Last updated
The statutory liquidity ratio (SLR) is the percentage of a bank’s net demand and time liabilities that it must hold in safe, liquid assets such as cash, gold and government securities, and keep with itself. It ensures that banks stay able to meet withdrawals, and it limits their lending.
In more detail
The SLR differs from the CRR in two ways: the assets stay with the bank, and they can be securities that earn interest. Both limit the credit banks can create. By requiring banks to hold government securities, the SLR also helps the government borrow. Changes in the SLR alter banks’ lending capacity, but the RBI uses the repo rate more often.
Example
With an SLR of 18 per cent, a bank with deposits of ₹1,000 crore must hold ₹180 crore in approved liquid assets before it lends the rest.
Key points
- Held by the bank itself, unlike the CRR.
- Assets can earn interest, such as government securities.
- It also creates a steady demand for government borrowing.
Common mistake
Confusing SLR with CRR. SLR can be held in securities; CRR is cash with the RBI.
Related terms
Where it is explained
This term is explained in Class 12 Macroeconomics Chapter 3: Money and Banking.