Full form of SLR?
VerifiedAnswer: Statutory Liquidity Ratio
Explanation:
The Statutory Liquidity Ratio (SLR) is one of the most important monetary policy tools used by the Reserve Bank of India (RBI) to control the money supply in the economy. It refers to the minimum percentage of deposits that commercial banks must maintain in the form of liquid assets before providing credit to customers.
Under SLR requirements, banks must hold a certain portion of their net demand and time liabilities in approved securities such as cash, gold, or government securities. These liquid assets can be easily converted into cash when needed, ensuring that banks maintain adequate liquidity to meet customer demands and unexpected withdrawals.
The primary purposes of SLR include:
• Controlling inflation by regulating credit flow in the economy • Ensuring bank solvency and protecting depositor interests • Creating a ready market for government securities • Providing banks with a cushion of liquid assets during financial stress
Currently, the SLR stands at 18% of a bank's net demand and time liabilities. When the RBI increases SLR, banks have less money available for lending, which reduces money supply and helps control inflation. Conversely, when SLR is decreased, banks can lend more freely, stimulating economic growth.
Understanding SLR is crucial for students studying economics, banking, and finance as it demonstrates how central banks use regulatory tools to maintain economic stability and influence monetary policy in the country.
