Objectives of Statutory Liquidity Ratio (SLR)
Statutory Liquidity Ratio being a major tool for monetary control has a wide range of objectives:
1. Control Money Supply: SLR creates a statutory obligation for banks to deposit a certain portion of their Net Time and Demand Liabilities, which creates a shortage of supply available with banks to overgo their business operations, which allows RBI to control inflation and excess money supply.
2. Protection of Commercial Banks: SLR makes sure that banks have enough liquidity available to themselves to make sure they can pay off customer dues and financial obligations on time. SLR also makes sure that banks do not experience over-liquidation.
3. Financial Stability: SLR makes sure that banks deposit their particular portion of holdings in safe, secure, and easily convertible securities. This helps banks to face any financial uncertainty or market distress.
4. Market to Government Securities: SLR has also helped the government to receive huge investments in government securities, as it has been observed that the majority of the time banks maintain these deposits in the form of government securities as it yields their interest income.
SLR | Full Form, Objectives, Components and Examples
The full form of SLR is Statutory Liquidity Ratio. SLR is defined as the minimum liquidity percentage that every bank has to maintain with them in order to discharge their liability as and when occurs. This liquidity can be maintained in the form of cash, gold, and other liquid assets. SLR is the amount that commercial banks need to maintain with themselves, not with the Reserve Bank of India (RBI).