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Statutory Liquidity Ratio (SLR): meaning, assets and example
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The statutory liquidity ratio (SLR) is the minimum percentage of its net demand and time liabilities (NDTL) that a bank must hold in safe, liquid assets, kept with the bank itself, before it can extend credit. It is set by the RBI under Section 24 of the Banking Regulation Act, 1949.
What counts towards the SLR
- Cash in hand
- Gold, valued at the current market price
- Unencumbered government securities, including treasury bills, dated central government securities and state development loans (see government securities)
- Other approved securities
The key difference from the cash reserve ratio: CRR is cash kept with the RBI and earns nothing, while SLR assets stay on the bank's own books and the government securities in them earn interest.
Legal ceiling
The Act allows the RBI to fix the SLR up to 40% of NDTL. The earlier 25% floor was removed in 2007, so the RBI can set a lower figure. A shortfall attracts penal interest, linked to the bank rate.
Why SLR exists
- Solvency cushion. It keeps a bank able to meet depositors' demands.
- Credit control. A higher SLR means less money available for loans.
- Government borrowing. Banks end up as steady buyers of government bonds.
The RBI can lend against these securities. The marginal standing facility even lets banks dip into their SLR holdings in an emergency.
Worked example (illustrative ratio)
Take a bank with NDTL of ₹10,000 crore and an illustrative SLR of 18%. It must hold ₹1,800 crore in approved liquid assets. If it holds ₹1,500 crore in government securities and ₹100 crore in cash, it is ₹200 crore short and must buy more securities or pay the penalty.
How bank exams ask about it
Look for "ratio of liquid assets to NDTL banks must maintain", "SLR is maintained in the form of", and the CRR versus SLR comparison (with the RBI or with the bank, interest or no interest). Another favourite: which of the following is not an SLR asset. Learn the full list of instruments in banking awareness.
Where to find the current ratio
The RBI's policy statement and key rates page at rbi.org.in give the ratio in force. Take the figure from there.
Frequently asked questions
Who must maintain the SLR?
Scheduled commercial banks, including regional rural banks and small finance banks, along with cooperative banks. Payments banks must hold most of their deposits in short government securities, which works as a stricter version of SLR.
Does a bank earn anything on its SLR assets?
On the government securities, yes, they pay interest. Cash and gold earn nothing, which is why banks hold mostly securities.
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- Cash reserve ratioCRR is the share of deposits that banks must keep with the RBI in cash. Meaning, legal basis, worked example, how it controls money supply and exam questions.
- Government securitiesGovernment securities are tradable bonds and bills issued by the Centre and states to borrow money. Dated G-secs, SDLs, price-yield link and exam questions.
- Marginal standing facilityThe marginal standing facility is the RBI window where banks borrow overnight in an emergency by dipping into their SLR holdings. Meaning, rate and exam facts.
- Treasury billsTreasury bills are short-term government securities issued at a discount and repaid at face value. Tenors, yield worked out, CMBs and exam facts.
- Repo rateRepo rate is the rate at which the RBI lends short-term money to banks against government securities. How it works, what a change does and how exams ask it.
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