SLR full form in banking is Statutory Liquidity Ratio. It is a mandatory requirement set by the Reserve Bank of India (RBI), which instructs all commercial banks to maintain a certain percentage of their net demand and time liabilities (NDTL) in the form of liquid assets. These liquid assets include cash, gold, and approved government securities. SLR is an important tool used by RBI to regulate credit flow and ensure financial stability in the banking system.
What Is SLR in Banking?
The Statutory Liquidity Ratio is a regulatory mechanism that determines how much of a bank’s deposits must be kept aside in safe and liquid assets. Banks cannot use this portion for lending or investment purposes. By controlling SLR, the RBI manages the availability of funds within the banking sector.
For example, if the SLR is set at 18%, every bank must keep ₹18 out of every ₹100 of their NDTL in approved liquid assets.
Objectives of SLR
1. Ensure Liquidity in Banks
SLR ensures that banks always have enough liquid assets to meet withdrawal demands and avoid financial crises.
2. Control Inflation and Credit Growth
By increasing SLR, RBI reduces the money available with banks for lending, which helps control inflation.
By decreasing SLR, RBI increases liquidity, promoting economic growth.
3. Promote Investment in Government Securities
SLR encourages banks to invest in government bonds, helping the government raise funds for development projects.
Components of SLR
Banks can maintain SLR using the following assets:
- Cash in hand
- Gold reserves
- Government-approved securities and bonds
- Treasury bills
These assets must be easily convertible into cash when required.
Difference Between SLR and CRR
| SLR | CRR |
| Maintained in liquid assets like cash, gold, securities | Maintained only in cash with RBI |
| Stored by banks themselves | Deposited directly with RBI |
| Helps manage liquidity and government borrowing | Helps control money supply |
Conclusion
The Statutory Liquidity Ratio (SLR) is a crucial regulatory tool that ensures stability and liquidity in the Indian banking system. By controlling SLR, the RBI manages credit flow, inflation, and financial discipline within banks. It plays a vital role in maintaining public confidence and strengthening the overall financial structure of the country.