The Full Form of ‘SLR’ in Banking is ‘Statutory Liquidity Ratio’.
Full Form of SLR
When it comes to banking, the term “SLR” may come up from time to time. SLR stands for Statutory Liquidity Ratio and is an important tool used by governments and central banks to control how much money banks are allowed to lend out. The ratio is a measure of how much cash or liquid assets a bank must hold in reserve in order to meet its obligations.
Statutory Liquidity Ratio (SLR) is one of the most important tools employed by the central bank of India, Reserve Bank of India (RBI), in order to regulate liquidity in the Indian banking system. It is an amount which all commercial banks have to maintain in the form of gold, government approved securities or cash. This ratio was introduced by RBI with an aim of controlling inflation in India and monitoring credit flow in the economy.
The Statutory Liquidity Ratio represents the percentage of total demand liabilities that a bank should maintain with itself at any point of time as specified by RBI. The SLR rate has been revised several times since its introduction and currently stands at 18%. This means that if a bank has total deposits worth Rs 10 lakhs, then it should hold a minimum balance of Rs 1.8 lakhs (18%) with itself either as cash or other eligible instruments such as gold or government approved securities.
A higher SLR implies greater liquidity but also less money available for lending activities due to the increased requirement for holding liquid assets; on the other hand, lower SLRs mean more money being available for lending activities but also lower levels of liquidity because there’s less requirement for holding liquid assets. Generally speaking, when there’s more money available for lending activities it leads to reduced interest rates as banks can easily compete with each other on price. Thus, changes in SLR can have significant implications on economic growth and investment activity due to their impact on interest rates and availability of credit.
Apart from regulating liquidity levels, another objective behind maintaining SLRs is that they provide safety against potential losses arising out of defaulting loans because banks are required to keep some portion of their deposits as liquid assets which can be used if needed during such times when customers fail to repay their loans/ credits.
Overall, Statutory Liquidity Ratios play an important role in regulating liquidity levels within an economy while also providing safety against potential losses arising from defaulting loans/credits. As such, it’s essential for policy makers and bankers alike to understand this concept so that they can make informed decisions regarding banking regulations and policies which ultimately affect economic growth and stability.
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