What is the Statutory Liquidity Ratio (SLR)?
The SLR
stipulates that the ratio of appropriate securities should be maintained in
relation to their demand and time
liabilities (DTL) as directed by the central bank
Current SLR rate
The current Statutory Liquidity Ratio (SLR) is
19.00%. It was last revised on April 13, 2019, when it was reduced by 0.25%
from its previous level of 19.25%. To date, i.e. on February 11, 2020, the
policy rates will also include the reverse repo rate of 5.15%. Repo rate is
5.40%, Bank rate 5.65% and Marginal
Standing Facility (MSF) rate has come down to 5.65%. According to data on
key monetary policy rates and reserve requirements set by the Reserve Bank of
India, the Reserve Ratio, which also includes the Cash Reserve Ratio (CRR), reached 4.00% and the Statutory Liquidity Ratio (SLR) at 19.00%.
The main objectives of SLR are:-
- SLR (Statutory Liquidity Ratio) is one such medium that acts to the RBI to ensure the security of a commercial bank.
- SLR helps in regulating the development of bank credit. By modifying SLR rates, the RBI can reduce or increase bank loan growth.
- Through SLR, the Central Bank implements commercial banks to fund government securities.
- SLR (like CRR) is a means of monetary policy to regulate and control the money supply in an economy. Low SLR rates provide liquidity in the system, as banks want to bear many government bonds and vice versa.
Statutory Liquidity Ratio (SLR) in India
The statutory liquidity ratio is directed under section
24 of the Banking Regulation Act, 1949.
Current level
The Reserve Bank has defined that each SCB will continue
to manage special assets in India, the profit of which will be less than 19 per
cent of the total NDTL (not more than 40 per cent of its total DTL) if it is
close to business on any given day.
Property for Special SLR
- Cash or
- Gold valuation not to exceed current market value,
- Investments in the following instruments related to "Statutory Liquidity Ratio (SLR) securities"
- Securities announced as of May 06, 2011.
- Treasury Bills of the Government of India.
- Government of India dated securities issued under the Market Stabilization Scheme and Market Financing Program.
- State Development Loans (SDLs) of the State Governments announced from time to time after the market lending program.
Procedure for calculation of SLR
The procedure for calculating the total NDTL for
consideration of SLR under Section 24 (2A) of the Banking Regulation Act, 1949
is broadly very similar to the method of CRR apart from any exception on special
liabilities directed to maintain CRR is not.
NDTL and SLR assets are treated according to the process of valuation defined by the Reserve Bank of India from time to time.
Maintenance of SLR on a daily basis
Unlike CRR, RBI does not approve or allow any
adaptability in the maintenance of SLR, that is, if the SLR must be maintained
at 100% or higher on a daily basis.
A punishment
If a banking company disappoints to maintain the required
amount of SLR, it will be responsible to pay RBI in respect of the failure, at
the reduction of bank interest rate at the rate of 3% pa for that day If the
failure persists on the following successful working day, punitive interest may
be increased at the rate of five percent per annum above the bank interest rate
for the required failure on the reduction.
Return to Form VIII (SLR)
Banks must submit before the 20th day of every month to
the Reserve Bank, a return in Form VIII determining the quantum of SLR with the
specifications of their DTL in India continued on alternate Fridays through the
following month To support the Negotiable Instruments Act, 1881 at the end of
business on the following working day on such Friday or if any Friday LA will
be a public holiday.
Banks should also submit a statement as an attachment to
the eighth set providing daily status of adjusted assets for consideration of
agreement with SLR and the additional cash balance should be managed with RBI
in the format managed by them.
