Statutory liquidity ratio

Statutory Liquidity Ratio (SLR) is a term used in the regulation of banking in India. It is the amount which a bank has to maintain in the form of cash, gold or approved securities. The quantum is specified as some percentage of the total demand and time liabilities of a bank. This percentage is fixed by the Reserve Bank of India. The date which is taken to calculate the demand and time liabilities of

presently it is 25%.

The President of India A P J Abdul Kalam* has given his assent to the Ordinance empowering the Reserve Bank of India (RBI) to cut the statutory liquidity ratio (SLR) below 25%.

The 25% is the minimum SLR (the statutory requirements to park their money in government bonds)limit the RBI can fix at present.

The move comes ahead of the credit review by the Apex Bank, slated for January 31st.

The objectives of SLR are 1) to restrict the expansion of bank credit 2) to augment the investment of the banks in Government securities and 3) to ensure solvency of banks.

• now the President of India is Ms Pratibha Patil

A reduction of SLR rates looks eminent to support the credit growth in india

Indian banks’ holdings of government securities (G-Sec) are now close to the statutory minimum banks are required to hold to comply with existing regulation. When measured in rupees, such holdings decreased for the first time in a little less than 40 years (since the nationalisation of banks in 1969) in 2005-06.

While the recent credit boom is a key driver of the decline in banks’ portfolios of G-Sec, other factors have played an important role recently. These include (i) interest rate increases; and (ii) changes in the prudential regulation of banks’ investments in G-Sec. Most G-Sec held by banks are long-term fixed-rate bonds, which are sensitive to changes in interest rates. Increasing interest rates have eroded banks’ income from trading in G-Sec.