Definition
Statutory Liquidity Ratio Impact
The SLR impact refers to how the minimum share of deposits banks must hold in government securities and other approved assets affects their lending capacity and earnings.
The SLR locks up a portion of each bank's deposits in safe, liquid assets, chiefly G-Secs. This reduces the funds available for lending but creates a captive demand for government borrowing and supplies high-quality assets that also help meet the LCR.
When the RBI changes the SLR, it directly alters how much banks can lend and shapes demand for sovereign debt. Banks often hold SLR securities above the minimum for liquidity, and shifts in bond yields then affect their treasury income and mark-to-market positions.
Related terms
- Liquidity Coverage Ratio (LCR)The Liquidity Coverage Ratio requires a bank to hold enough high-quality liquid assets to cover its net cash outflows over a 30-day stress scenario.
- SLR (Statutory Liquidity Ratio)The SLR is the minimum share of their deposits that banks must keep parked in safe liquid assets like government securities, cash or gold before they can lend the rest.
- CRR (Cash Reserve Ratio)The CRR is the share of a bank's deposits it must park as cash reserves with the RBI, earning no interest, which the RBI adjusts to control liquidity in the banking system.
- G-Sec (Government Security)A G-Sec is a bond issued by the Government of India to borrow money, considered the safest rupee investment because it carries sovereign backing.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.