Definition
Statutory Liquidity Ratio (SLR)
The Statutory Liquidity Ratio is the minimum proportion of deposits banks must hold in safe liquid assets such as government securities, cash or gold.
Under SLR, banks must invest a prescribed share of their deposits in approved liquid assets, predominantly government securities. This ensures banks remain solvent and liquid, and it also creates a captive demand for G-secs that supports the government's market borrowing.
Unlike CRR, SLR holdings can earn returns since they are largely held in interest-bearing G-secs. By adjusting SLR, the RBI can influence how much banks must lock into safe assets versus deploy as credit, though it is changed less frequently than the repo rate.
Related terms
- Market Borrowing (Dated Securities)Market borrowing is the money the government raises by issuing dated securities — long-term bonds — to investors to finance its fiscal deficit.
- Government Securities (G-Sec)Government securities are tradable debt instruments issued by the central or state governments, considered virtually free of credit risk in rupee terms.
- Cash Reserve Ratio (CRR)The Cash Reserve Ratio is the share of a bank's deposits that it must keep with the RBI in cash, earning no interest, as a monetary policy and prudential tool.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.