|
Getting your Trinity Audio player ready...
|
The RBI uses various monetary policy tools to regulate liquidity, control credit flow and maintain stability in the banking system. The Statutory liquidity ratio (SLR) is one such tool. SLR requires banks to keep a certain portion of their money in liquid assets to maintain liquidity.
In this article, we explore the meaning of Statutory Liquidity Ratio in detail, assessing it’s key objectives, components, and uses to understand why this monetary tool is important to regulate the Indian economy.
What is Statutory Liquidity Ratio (SLR)?
The Statutory Liquidity Ratio or SLR represents the share of a bank’s total deposits which must be set aside in approved liquid assets in line with RBI regulations.
As per RBI guidelines, these liquid assets may be maintained in:
- Cash held by the bank
- Gold, valued at a price not exceeding the current market value
- Unencumbered investments in approved securities, including central and state government securities notified by the RBI
SLR is expressed in percentage terms and is calculated on the Net Demand and Time Liabilities (NDTL) of a bank, which include savings accounts, current accounts and fixed deposit balances.
Currently, the SLR rate in India is 18%, meaning banks must keep 18% of their total deposits in liquid assets. The RBI has set 40% as the maximum permissible SLR limit.
Objectives of SLR
The Statutory Liquidity Ratio is a monetary policy tool and serves the following objectives:
- Repay deposits: The chief objective of SLR is to maintain adequate liquid funds to repay public deposits even during times of crisis.
- Preventing sudden asset liquidation: The SLR requirement ensures banks do not liquidate their liquid holdings when the RBI increases the CRR, helping maintain financial stability.
- Controlling credit flow: The Statutory Liquidity Ratio is used by the RBI to regulate how much credit banks can lend out. This helps control credit flow into the economy.
- Encouraging investment in government securities: Because SLR includes investing in approved securities, it helps promote bank investments in government bonds.
- Ensuring bank solvency: By making banks invest a portion of their liquid funds into government securities, SLR aims to strengthens their financial solvency.
- Supporting government debt management: SLR also assists the government in raising funds by creating a steady investor base for its securities, aligning with RBI’s monetary policy objectives.
Components of SLR
The Statutory Liquidity Ratio is divided into two key components:
1. Liquid Assets
Liquid assets are those that can be easily converted into cash with minimal loss in value. As prescribed by the RBI, these include:
- Cash reserves held by banks
- Gold valued at or below prevailing market prices
- Government of India dated securities
- Treasury Bills issued by the central government
- State Development Loans (SDLs)
- Securities issued under the Market Borrowing Programme
- Instruments notified under the Market Stabilisation Scheme
2. Net Demand and Time Liabilities (NDTL)
Under the Statutory liquidity ratio (SLR) framework, Net Demand and Time Liabilities (NDTL) represent the total deposits and liabilities a bank owes to its customers and other institutions. NDTL includes:
- Demand liabilities: Savings account balances, current account deposits, and overdue fixed deposits that can be withdrawn on demand.
- Time liabilities: Fixed deposits, recurring deposits, and certificates of deposit that are repayable only after a fixed maturity period.
How is the SLR Rate for Banks Calculated?
The Statutory liquidity ratio (SLR) is expressed as a percentage of the Net Demand and Time Liabilities (NDTL) of a bank. The following formula is used to measure how much SLR a bank currently has:
| SLR rate = (Liquid assets ÷ Net Demand and Time Liabilities) × 100 |
Let’s take an example to understand this better. Let’s assume a bank has
- NDTL: ₹2,000 crore
- Liquid assets: ₹320 crore (₹80 crore in cash, ₹160 crore in government securities and ₹80 crore in gold)
As of 17th December 2025, the SLR rate set by RBI is at 18%. In this case, the minimum liquid assets required would be:
₹1,500 crore × 18% = ₹270 crore
Now, calculate the bank’s current SLR:
(₹300 crore ÷ ₹1,500 crore) × 100 = 20%
Since the bank’s Statutory Liquidity Ratio is higher than the required 18%, it complies with RBI guidelines and maintains adequate liquidity.
Uses of Statutory Liquidity Ratio (SLR)
The Statutory liquidity ratio (SLR) is an important monetary policy tool used by the RBI to regulate liquidity and maintain stability in the banking system. Its key uses include:
- Ensuring bank solvency
By requiring banks to maintain a minimum level of liquid assets, SLR helps keep banks financially stable and reduces the risk of liquidity stress. - Promoting investment in safe assets
SLR encourages banks to invest in approved government securities, gold and other low-risk instruments specified by the RBI. - Controlling inflation and credit growth
When the RBI increases the SLR, banks have fewer funds available for lending, which helps control excessive credit expansion and inflation. - Supporting economic growth during slowdowns
When the SLR is reduced, banks can lend more, improving cash flow and supporting spending and investment during periods of economic slowdown.
What Happens If SLR Is Not Maintained?
As per Section 24 and Section 56 of the Banking Regulation Act of 1949, all scheduled commercial banks (including co-operative banks) have to maintain the RBI’s prescribed Statutory Liquidity Ratio threshold.
Failure to comply can lead to the following consequences:
- Penal interest: RBI may impose penalty interest on the shortfall amount.
- Regulatory action: Persistent non-compliance can result in the RBI imposing operational restrictions on core banking operations.
- Loss of depositor confidence: Liquidity shortfalls may raise concerns about a bank’s financial stability.
Difference Between SLR and CRR
Most people get confused between SLR and CRR. Although both are liquidity control tools of the RBI, SLR and CRR differ in structure and purpose. Let’s review their differences in detail:
| Aspect | SLR | CRR |
| Meaning | Deposits held in liquid assets | Deposits held as cash |
| Authority | Held by the bank | Held with RBI |
| Asset type | Cash, gold, government securities | Cash only |
| Interest earned | Yes | No |
| Objective | Credit control and maintaining the bank’s solvency | Regulate liquidity in the economy |
Conclusion: SLR As Key for Credit Flow Management
To sum up, the Statutory Liquidity Ratio (SLR) is essentially the mandatory level of liquid asset investments banks need to make to ensure stability, manage credit flow and meet depositor obligations. Understanding the meaning of SLR, its objectives, components and importance helps explain how the RBI balances liquidity and inflation in the banking system.
If you’re also looking to invest in fixed-income securities, you can head to the GoldenPi platform. Here, you can review bank and corporate FDs, bonds, and NCDs, compare options, and choose ones that match your goals!
FAQs on Statutory Liquidity Ratio (SLR)
What is the current SLR rate in India?
As of 17th December 2025, the Statutory Liquidity Ratio rate in India 18%. However, this rate is subject to change as per RBI’s policy changes.
What is the purpose of SLR?
The purpose of SLR is to regulate credit flow in the economy, and ensure banking stability. It is also critical in helping banks maintain financial liquidity to meet depositor withdrawal demands.
Who decides SLR?
The Reserve Bank of India determines and revises the SLR rate.
How is SLR calculated?
SLR is calculated as liquid assets divided by Net Demand and Time Liabilities (NDTL). The following formula is used to calculate SLR:
SLR = [Liquid Assets ÷ (Net Demand & Time Liabilities)] × 100
What is the impact of SLR on the economy?
Higher SLR means banks have to maintain more liquidity and can lend less. This reduces lending activities and can also help curb inflation as the credit flow is lower.
A lower SLR rate means banks can use money of their reserves to lend money. This increases credit flow in the economy and can be a good stimulus for growth during periods of low economic activity.
Disclaimer:
This information is for general information purposes only. GoldenPi makes no guarantee on the accuracy of the data provided here; the information displayed is subject to change and is provided on an as-is basis. Nothing contained herein is intended to or shall be deemed to be investment advice, implied or otherwise. Investments in the securities market are subject to market risks. Read all the offer-related documents carefully before investing.
Fixed Deposit schemes are regulated by the Reserve Bank of India. GoldenPi Securities Private Limited is a registered debt broker and acts as a distributor and not as a manufacturer of the product.
