Statutory liquidity ratio

Government term for the reserve requirement that the commercial banks in India are required to maintain in the form of cash, gold reserves, RBI approved securities before providing credit to the customers. Statutory liquidity ratio is determined by Reserve Bank of India maintained by banks in order to control the expansion The SLR is determined by a percentage of total demand and time liabilities. Time liabilities refer to the liabilities which the commercial banks are liable to pay to the customers after a certain period mutually agreed upon, and demand liabilities are such deposits of the customers which are payable on demand. An example of time liability is a six month fixed deposit which is not payable on demand but only after six months. An example of demand liability is a deposit maintained in a saving account or current account that is payable on demand through a withdrawal form such as a cheque. The SLR is commonly used to control inflation and fuel growth, by increasing or decreasing it respectively. This counter acts by decreasing or increasing the money supply in the system respectively. Indian banks’ holdings of government securities are now close to the statutory minimum that banks are required to hold to comply with existing regulation. When measured in rupees, such holdings decreased for the first time in a little less than 40 years (since the nationalisation of banks in 1969) in 2005–06. Currently it is 19 percent.