SLR full form in Banking

SLR full form in Banking |
Full Form of SLR

SLR full form is Statutory Liquid Ratio.

In simple words, SLR means Banks needs to maintain a certain percentage of deposit in liquid form as per the mandate given by the Reserve Bank of India.

SLR is maintained in the form of Cash, Gold reserve, Reserve Bank of India approved securities.

SLR is a certain percentage of Net Demand and Time Liability (NDTL)

At present SLR rate is 18 per cent.

SLR Formula

SLR= SLR percentage/NDTL*100
SLR is a monetary tool.

RBI uses SLR to control inflation.

When there is inflation in the economy, the Reserve Bank of India will increase the SLR which in-turn will reduce the money supply. A reduced supply of money will reduce the demand for money and will contain inflation.

SLR requirement also helps Government/RBI in raising the funds from the market.

These funds are used for fulfilling the budgetary deficit of the Government.

RBI also works as a merchant banker of the govt (it raises funds for the Government by selling govt securities) in which RBI will prefer to raise at low cost from the market.

At the same time, RBI is a monetary authority and can influence the interest rate in the market. Therefore, there is a conflict of interest.

SLR- helps to Government to raise funds cannot be the objective of SLR requirement.

SLR example

If you deposit Rs. 100000/- in bank
CRR being 3% and SLR is 18%,

then the bank can use 100000-3000-18000
= Rs. 79000/-
for lending purpose.

RBI has the power to increase SLR up to 40 per cent.

Also read
Previous Post Next Post