The banks and other financial institutions in India have to keep a fraction of their total net time and demand liabilities in the form of liquid assets such as G-secs, precious metals, approved securities etc. The Ratio of these liquid assets to the total demand and time liablities is called Statutory Liquidity Ratio. This ratio was prescribed by the Section 24 (2A) of Banking Regulation Act 1949, which initially mandated for a 23% SLR.
Components of SLR
Components of SLR include 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.
Current SLR
The SLR was very high in the 1980s, and highest in first two year of 1990s, when the first Narsimham Committee recommended to bring it down from 38.5% to 25%. At present, the SLR is 21.5% (February 2015)
Difference between CRR and SLR
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. This is not kept with RBI but with banks themselves.
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