Table of Contents
What is the purpose of SLR?
The primary objective of the SLR rate is to maintain liquidity in financial institutions operating in the country. Besides this, the SLR rate also helps: Control credit flow and inflation. Promote investment in government securities.
What is the current SLR requirements of banks?
Currently, the statutory liquidity ratio rate is 18%. (As on August 27, 2020). RBI has kept 40% as the maximum limit for SLR. SLR is calculated as a percentage of all the deposits held by the bank.
Why SLR is less effective than CRR?
The important difference between CRR and SLR is that CRR has to be maintained in cash while SLR can be maintained either in cash or in assets that RBI suggests. Banks don’t earn any returns from the money parked in the form of CRR. However, banks can earn returns from SLR.
What is SLR example?
This minimum percentage is called Statutory Liquidity Ratio. Example: If you deposit Rs. 100/- in bank, CRR being 9% and SLR being 11%, then bank can use 100-9-11= Rs.
What is SLR and how does it work?
Statutory Liquidity Ratio (SLR) is the govt term for the reserve demand that commercial banks are required to maintain in the form of cash, gold reserves, Reserve Bank of India (RBI) approved securities before giving credit to the customers. The SLR is determined by the RBI.
Why banks should maintain CRR and SLR?
Through CRR, the RBI controls excess money flow in the economy whereas the SLR requirement ensures meeting out the unexpected demand of any depositor by selling the bonds. In short, CRR helps to regulate liquidity while SLR regulates credit growth in the economy.
How SLR is calculated?
The formula for calculating SLR ratio is = (liquid assets / (demand + time liabilities)) * 100%.
How is SLR maintained?
SLR has to be maintained in the form of gold, cash or approved securities notified by RBI such as central and state government bonds. SLR is held in approved assets and is not available to the bank for making loans or investing in securities markets or other bonds.
What is the purpose of CRR and SLR?
Difference between CRR & SLR
| Statutory Liquidity Ratio (SLR) | Cash Reserve Ratio (CRR) |
|---|---|
| SLR is used to control the bank’s leverage for credit expansion. It ensures the solvency of banks | The Central Bank controls the liquidity in the Banking system through CRR |