SLR
Also written Statutory Liquidity Ratio
The minimum percentage of a bank's total deposits it must hold in cash equivalents such as government securities and gold, rather than as cash — a companion tool to CRR.
In plain language
Banks are not free to lend out every rupee deposited with them. Part of it must be kept safe, in a form the regulator specifies.
SLR is one of the two such rules. Unlike CRR, which must be held strictly as cash with the central bank, SLR can be held in cash equivalents — government securities and gold — which still earn the bank some return.
How it works
The workbook: SLR is the "minimum percentage of the total deposits, which commercial banks have to hold in cash equivalents such as gold and government of India securities." For banks specifically, Chapter 6.7.3 lists "cash reserve ratio and statutory liquidity reserve ratio" among the sector's key metrics to track, alongside net interest margin.
A worked example
Illustrative figures — the workbook does not state a current SLR percentage.
A bank with Rs 8,00,000 crore of total deposits, facing an SLR of 18%, must hold Rs 1,44,000 crore in government securities and gold.
8,00,000 × 18% = Rs 1,44,000 crore
If the central bank cuts SLR by 50 basis points, to 17.5%, the bank needs to hold only Rs 1,40,000 crore this way — freeing up Rs 4,000 crore it can now lend out instead.
Why NISM asks about it
Chapter 5.3.7 (Monetary Policies) and Chapter 6.7.3 (banking sector KPIs) both reference SLR. Expect a question distinguishing SLR from CRR — cash equivalents including gold and government securities, versus cash only — and a computation question applying an SLR percentage to a deposit base.
Common exam traps
- SLR can be held in interest-earning government securities and gold; CRR must be held strictly as cash with the central bank. Swapping the two is the classic error.
- The workbook does not give a current numeric SLR — do not answer with a specific percentage unless the question itself supplies one.
Check yourself
1.Statutory Liquidity Ratio (SLR) refers to the minimum percentage of total deposits which commercial banks have to hold in:
- a)Cash reserves with the central bank
- b)Cash equivalents such as gold and Government of India securities
- c)Current accounts with other commercial banks
- d)Foreign currency assets
Show the answer
Answer: (b) Cash equivalents such as gold and Government of India securities
SLR is the minimum percentage of total deposits banks must hold in cash equivalents such as gold and Government of India securities — held by the bank itself.
Option A is the definition of CRR — the Cash Reserve Ratio is the minimum percentage of total deposits held as cash reserves with the central bank. Both definitions begin with the identical phrase "minimum percentage of the total deposits", so the phrase cannot separate them. What separates them is the form of the asset (cash versus gold and G-secs) and where it is held (with the central bank versus with the bank itself).
Options C and D are not part of either definition.
Where this is taught
Free preparation for NISM Series XVRelated terms
- Bank RateThe rate at which the central bank lends to commercial banks without collateral, for medium to long-term or emergency needs — one of RBI's tools for controlling money supply and rates.
- CRRThe minimum percentage of a bank's total deposits that it must hold as cash reserves with the central bank, earning no interest — one of RBI's tools for controlling money supply.
- Monetary policyThe central bank's management of money supply and interest rates to promote growth and hold prices stable — expansionary when it wants to push the economy up, contractionary when it wants to cool it.
- Repo rateThe rate at which the central bank lends money to banks for a very short term against approved securities — the main lever it pulls to make money cheaper or dearer.