SLR (Statutory Liquidity Ratio)

The Statutory Liquidity Ratio (SLR) is the minimum proportion of a commercial bank's Net Demand and Time Liabilities (NDTL) that it must maintain in the form of approved liquid assets — primarily Indian government securities (G-Secs), gold, and cash. Unlike CRR, SLR-held assets earn a return (the bond coupon, gold price changes).

Formula: SLR (in Rs) = NDTL x SLR rate

Example: A bank with Rs 10 lakh crore of NDTL and an SLR rate of 18% must hold Rs 1.8 lakh crore in approved securities (typically central / state government bonds). Because these are mostly G-Secs yielding 6.5-7%, the income loss versus market-deployable funds is small.

Twin purposes:

• Bank solvency and liquidity: A buffer of liquid, low-credit-risk assets that can be sold or repo-ed quickly during stress.
• Fiscal funding channel: Guarantees a captive demand pool for government bond issuances, helping the centre finance its fiscal deficit at low yields.

Versus CRR:

• CRR is cash with RBI — earns nothing.
• SLR is government securities held by the bank itself — earns coupon income.

Historical trend: SLR has been on a secular decline — from 38.5% in the 1990s to around 18% today — as the RBI has tried to reduce the financial-repression element of forcing bank funds into government bonds.

HTM (Held-to-Maturity) bucket: Banks can park a portion of their G-Secs in the HTM bucket, where the securities are not marked to market — useful when bond yields rise and prices fall, since HTM holdings shield the bank's P&L.

Related: CRR, Repo Rate, Fiscal Deficit.

Disclaimer: Educational content from MintByte (ARN-314872, MFD). SLR rates change with RBI policy — verify at rbi.org.in. SEBI Investment Adviser registration is in process.