What is the Full Form of SLR?

Statutory Liquidity Ratio

SLR (Statutory liquidity ratio) is the term of Indian government. It reserve requirement which require maintaining the commercial bank in India in the form of gold. With the help of it government approve officially about security before giving any type of credit to the customer. Reserve bank of India determines this statutory ratio. SLR helps the RBI to maintain the criteria of the entire bank’s working to control the limit of credit.

Percentage of time liabilities and total demand is used to determine the SLR value. In which, time liability provide the fix time on commercial bank also agree to pay the customer in fix time constrain and customer are mutually agree on that time. And another thing i.e., demand liabilities is that deposited money which is payable by the customer to the bank when bank demand. For example of liability of demand is a maintain way of deposit in current account and saving account that is on demand will be payable via withdrawal from different things like cheque. And For example of time liability is fixed deposit in one year which is on demand not to be payable but only in the period of one year.

Purposes of SLR

The serving three purposes is aim of SLR:

• For credit card it is an instrument;
• Against the possibility of bank failures it works as a cushion; and
• For financing government deficits it is a conduit.

Rest of these things, the third purpose is serving overwhelmingly by the SLR. As the instrument of credit control, it is blunt relatively and in the place of infrequently it is being used. Only five times from 25% to 23% SLR has been changed between October 25, 1997 and August 11, 2012. Too much far as its function according to a cushion it is concern against the bank failure. Practically it is completely meaningless. The reason behind it is that there is not any allowance by the RBI/Government of failure of week commercial bank which is while bank failures guided by the too-big-to-fail doctrine. So the chances make that the SLR’s abolition of biggest causality would be programs of government borrowing. It is every year of gigantic size.

Components of SLR

SLR’s Component includes gold owned by the bank, cash in hand, Net balance in current account, Investment in Government securities & balance with RBI. Every day at the close of business SLR is to be maintained.

Why SLR?

For a purpose the SLR is formulated and determined. by the SLR of commercial bank’s solvency can be determined. If by a commercial bank the SLR is maintained, then credit-allocation capacity of a that bank can understand by the Reserve Bank. evaluated by a bank; similarly, the solvency is also evaluated by RBI of a commercial bank with the SLR’s help. With the help of determination of SLR the bank credits with its expansion can be controlled. RBI can modify the bank credits only if SLR rates are modified, then, its maintenance or expansion.