Statutory liquidity ratio
What is statutory liquidity ratio?
Also known as SLR (although nothing to do with cameras), it’s the amount of liquid assets, such as cash and precious metals, that a financial institution must maintain in its reserves to comply with banking regulations set out by a national government.
Where have you heard about statutory liquidity ratio?
It’s a term most associated with India. Banks have to report their SLR to the Reserve Bank of India every other Friday. If they fail to maintain the ratio as decreed by the Indian government, they have to pay a fine.
What you need to know about statutory liquidity ratio.
The SLR is determined by identifying a percentage of a bank’s total time and demand liabilities. Time liabilities refer to money that is payable after a certain time period due to assets maturing, while demand liabilities include money withdrawn from a savings account.
The sum total of liabilities is multiplied by an identified percentage, providing the SLR and determining the amount of assets that must be kept on hand.
The SLR can be increased or decreased to control inflation and the expansion of bank credit.