• Statutory Liquidity Ratio (SLR)

    Statutory Liquidity Ratio indicates the minimum percentage of total demand and liabilities the banks has to maintain as liquid assets at the close of every business day to support any sudden increase in withdrawal and cash demand. The liquid assets can be in the form of cash, gold and government approved securities. It is an efficient monetary policy tool and the benefits it provides are

    • It helps to reduce the liquidity in the financial system by restricting banks to hold some liquidity with them.
    • It encourages the banks to invest in the government bonds and treasury bills, which the government sells to borrow money from the market.
    • It also reduces the risk of bank being default on sudden increase in demand and liabilities.

    CRR uses total deposit as the reference while SLR uses the total demand or liabilities as the reference while calculating the money to be held. This is the main difference between SLR and CRR.

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