As per Section 24 (2A) of Banking Regulation Act 1949, every banking company in India has to maintain equivalent to an amount which shall not at the close of the business on any day be less than 23% of the total of its net demand and time liabilities. The components of SLR are Cash in hand, Gold owned by the bank, Balance with RBI, Net balance in current account & Investment in Government securities. SLR has to be maintained at the close of business on every day.
Please note that The CRR and SLR have been the traditional instruments of Reserve Bank of India's monetary control policy. CRR indicates the quantum of cash that banks are required to keep with the Reserve Bank as a proportion of their net demand and time liabilities (NDTL). SLR prescribes the amount of money that banks must invest in securities issued by the government. The following graph shows the history of changing SLR in India.
The above chart shows that Initially SLR was 20% and it was maintained at the same rate for at least 15 years and then was changed in 5 years in 1970. The SLR was maximum during the first two three years of 1990s when India’s economy was struggling.
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It was maximum at 38.5% in September 1990 and remained till 1992.
After that it was gradually brought down. Since the economic slowdown it was agin increases by just 1% and it was stagnant at 25% since 2009, when in December 2010, it was brought down to 24%. In July 2012, RBI decreased the SLR from 24% to 23%. Please note that RBI is empowered to raise the SLR of the scheduled commercial Bank till 40%.
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