Statutory Liquidity Ratio (SLR): Components, Objectives & Impact on Investors

What Is a Statutory Liquidity Ratio?

What Are the Components of Statutory Liquidity Ratio?

What Are the Objectives of Statutory Liquidity Ratio?

What Are the Types of Institutions That Needs to Maintain an SLR?

What Happens if an Institution Does Not Maintain Statutory Liquidity Ratio?

What Is the Impact of Statutory Liquidity Ratio on Investors?

Differences Between Statutory Liquidity Ratio & Cash Reserve Ratio

Statutory Liquidity Ratio

Cash Reserve Ratio

Banks are required to reserve liquid assets, which include cash, gold and government bonds as SLR.

Banks need to have only cash reserves with the Reserve Bank of India to maintain CRR.

Financial institutions earn returns on assets parked as SLR.

In contrast, financial institutions do not earn returns on cash parked as CRR

SLR works as a tool to control the credit expansion of a bank.

Whereas, RBI uses CRR as a tool for controlling liquidity in banks.

Banks need to maintain the liquid assets by themselves.

On the other hand, banks must maintain CRR with the Reserve bank.

Banks across the globe work as institutions that securely hold public deposits and offer returns. Nevertheless, this function is risky and requires every bank to be cautious. RBI justifies the policy of statutory liquidity ratio by ensuring banks’ solvency and protecting the public’s money.

Frequently Asked Questions