Statutory Liquidity Ratio
- 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 ( i.e. the liabilities of the bank which are payable on demand anytime, and those liabilities which are accruing in one months time due to maturity) of a bank. This percentage is fixed by the Reserve Bank of India. The maximum and minimum limits for the SLR are 40% and 25% respectively. [Master Circular of RBI to banks http://rbidocs.rbi.org.in/rdocs/notification/PDFs/55663.pdf] Presently the SLR is 25%.
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. A reduction of SLR rates looks eminent to support the credit growth in India.
The SLR is commonly used to contain inflation and fuel growth, by increasing and decreasing it respectively. This acts by decreasing or increasing the money supply in the system respectively.
Indian banks’ holdings of government securities (Goverenment securities) 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.
References
Following the amendment of the Banking regulation Act(1949) in january 2007, the floor rate of 25% for SLR was removed
Wikimedia Foundation.
2010.
Look at other dictionaries:
liquidity ratio — a comparison of two accounts in a Balance Sheet, current assets divided by current liabilities. Glossary of Business Terms * * * liquidity ratio liquidity ratio ➔ ratio * * * liquidity ratio UK US noun [C] ► ACCOUNTING the value of a company s… … Financial and business terms
Monetary policy of India — Monetary policy is the process by which monetary authority of a country, generally a central bank controls the supply of money in the economy by exercising its control over interest rates in order to maintain price stability and achieve high… … Wikipedia
Open market operations — (also known as OMO) is the buying and selling of government bonds on the open market by a central bank. It is the primary means of implementing monetary policy by a central bank. The usual aim of open market operations is to control the short… … Wikipedia
Chakravarty Committee on Monetary Policy (1985) — The S. Chakravarty Committee was formed in 1985 under the chairmanship of Prof.Sukhamoy Chakravarty[1] to assess the functioning of the Indian Monetary system.[2] Its goal was to improve monetary regulation, a feat that was hoped would enable… … Wikipedia
Reserve Bank of India — Infobox Central bank bank name in local = भारतीय रिज़र्व बैंक image 1 = RBI Tower.jpg image title 1 = The RBI headquarters in Mumbai image 2 = image title 2 = headquarters = coordinates = established = April 1, 1935 president = Duvvuri Subbarao… … Wikipedia
SLR — The acronym SLR can refer to:* The Ethnic SALAR SLR, from an Oghuz tribe of the Seljuk Turks, left Samarkand in present day Uzbekistan and eventually settled in their present location in Gansu province. Over the course of their history, the… … Wikipedia
Reserve Bank of India — Reserve Bank of India … Deutsch Wikipedia
ECONOMIC AFFAIRS — THE PRE MANDATE (LATE OTTOMAN) PERIOD Geography and Borders In September 1923 a new political entity was formally recognized by the international community. Palestine, or Ereẓ Israel as Jews have continued to refer to it for 2,000 years,… … Encyclopedia of Judaism
Allied Irish Banks — Not to be confused with Anglo Irish Bank. Allied Irish Banks p.l.c. Type Partially State owned Founded 1966 Headquarters … Wikipedia
Economic Affairs — ▪ 2006 Introduction In 2005 rising U.S. deficits, tight monetary policies, and higher oil prices triggered by hurricane damage in the Gulf of Mexico were moderating influences on the world economy and on U.S. stock markets, but some other… … Universalium
