SLR – Statutory Liquidity Ratio, Components, Working, Current SLR

By Balaji

Updated on: March 10th, 2023

SLR, or Statutory Liquidity Ratio, is the minimum percentage of deposits maintained by Commercial banks in the form of gold, liquid cash, or other securities. The SLR was announced and fixed by the Reserve Bank of India. The current SLR in India is 18%. However, the Reserve bank of India holds the right to increase the SLR rate by up to 40%.

The maintenance of SLR for central co-operative banks, states co-operative banks, urban (primary) co-operative banks, local area banks, and scheduled commercial banks is mandated under Section 24 and 56 of the Banking Regulation Act 1949. SLR and CRR help maintain liquidity in the bank, and RBI uses these tools as their monetary policy to control inflation.

Table of content

  • 1. What is SLR? (more)
  • 2. Statutory Liquidity Ratio Overview (more)
  • 3. Components of SLR (more)
  • 4. How Does SLR Work? (more)
  • 5. Why is the SLR Fixed? (more)
  • 6. SLR and CRR (more)
  • 7. Statutory Liquidity Current Rate (more)

What is SLR?

SLR, or Statutory Liquidity Ratio, is the ratio of a bank’s liquid assets to its net demand and time liabilities. SLR in banking is the minimum amount of reserves maintained by the country’s commercial banks. Before giving credit to customers, commercial banks are required to keep SLR as their reserve.

SLR- Statutory Liquidity Ratio PDF

The term “Statutory” in Statutory Liquidity Ratio means that the maintenance of SLR is a mandatory requirement. SLR is instrumental in ensuring the bank’s solvency and cash flow in the economy. RBI provides specific guidelines and regular updates to all the banks for smooth classification of the liquid assets under SLR.

Statutory Liquidity Ratio Overview

Here are a few important highlights of the SLR in India. Check the complete details of the statutory liquidity ratio and other details.

SLR Highlights
SLR Full Form Statutory Liquidity Ratio
SLR Rate in India is set by The Reserve Bank of India sets the SLR in India.
CRR and SLR CRR is Cash Reserve Ratio; another monetary instrument RBI uses to control inflation.
Other instruments apart from SLR Repo Rate, Bank Rate, Reverse Repo Rate, CRR, and SLR

Components of SLR

The major components of SLR are as under-.

  • Liquid Assets: The assets that can be converted into cash are liquid assets. SLR can be maintained in cash reserves, government bonds, govt-approved securities, treasury bills, and gold. Along with this, these assets also include securities that are considered eligible under Market Stabilization Schemes and Market Borrowing Programmes.
  • Net Demand and Time Liabilities (NDTL): SLR is a proportion of NDTL. It refers to the time liabilities and the demanded time of the public held by banks with each other. Banks’ liabilities to pay on demand are involved in the demand deposits. These liabilities are balances in overdue fixed deposits, demand drafts, current deposits, and savings bank deposits’ demand liabilities portion. On the other hand, the time liabilities comprise all the deposits that can be repaid on maturity. E.g., staff security deposits, time liabilities portion, fixed deposits.
  • SLR Limit: There is a fixed limit on the SLR. The lower limit of SLR is 23%, while the upper limit is 40%.

How Does SLR Work?

By the end of the day, there must be a specific portion of NDTL by all the banks in the form of gold, cash, or any other type of liquid asset. The ratio for said liquid assets to time and demand liabilities is called SLR (Statutory Liquidity Ratio). The SLR is fixed for all the banks by the Reserve bank of India.

Not only that RBI has the right to fix the SLR, but it can also make changes in the fixed SLR for a bank at times of recession or inflation. It can increase the SLR up to 40%. If the SLR is increased, it will restrict the bank’s ability to inject money into the economy.

Why is the SLR Fixed?

The SLR is required to fix the minimum rate for all the banks to grant money to their customers. The amount is known as the base rate. The base rate develops transparency between all the public dealing and RBI. A bank’s SLR is fixed for the following reasons-

  • To ensure commercial banks’ solvency.
  • For checking the bank credit expansion.
  • For compelling the banks to invest in particular government securities, e.g., bonds.
  • By decreasing the SLR, there is an increase in growth and demand, which results in an increase in liquidity with all the commercial banks.

However, the Reserve Bank of India fixes the SLR, but at times, it has the authority to increase or decrease the SLR. During the recession, SLR is reduced by the Reserve Bank of India so that the bank credits get a boost, while in case of inflation, the SLR is increased to limit the bank credits.

What if a Bank Fails to Fulfill the Required SLR?

In any case, if banks fail to maintain the required Statutory Liquidity Ratio, then it has to pay a penalty to RBI. The penalty amount is equal to the deficient amount for the specific day and an amount of 3% above the bank rate.


SLR and CRR are often confused with being similar as both are the major components of monetary policy. Perhaps these two terms are different from each other. The difference between SLR and CRR is as follows-

Statutory Liquidity Ratio (SLR) Cash Reserve Ratio (CRR)
Banks are asked to have plenty of reserves for cash as well as gold, i.e., liquid assets in the case of SLR. In the case of CRR, the Reserve Bank of India demands cash reserves only.
Banks can earn returns on money considered SLR. There is no earning from the money considered CRR.
SLR controls the bank’s leverage for credit expansion. In CRR, the liquidity in the Banks is controlled by the Central Bank.
In SLR, banks keep the security to themselves. The banks require this security for the maintenance of liquid assets. Here, RBI and banks maintain the cash reserves.

Statutory Liquidity Current Rate

The current Statutory Liquidity Ratio or SLR rate stands at 18% as per the RBI’s Monetary Policy. The SLR rate is decided by the RBI according to the current situation of the banks & thus the economy. The Statutory Liquidity Current rate is maintained by the banks as specified by the Reserve Bank of India.

It is important to maintain the SLR in order to keep a check on the supply of money in the economy. The banks that fail to maintain the required SLR rate have to pay penalties in the form of an interest rate of 3% per annum which should be above the bank rate. Therefore, it is extremely important for the banks to maintain the Statutory Liquidity Current rate.

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