Banking is diverse and there are a lot of technical terms and jargons which if thrown at us would baffle our minds. One such term is SLR rate. What is SLR rate? What is its meaning? If you are struggling to answer these questions, I am here to relieve you from the stress. I have been closely associated with banking professionals and have acquired a little bit of knowledge as well. Perhaps I can make you understand it better.
SLR rate definitionSLR full form is Statutory Liquidity Ratio. The Reserve Bank of India mandatorily requires the commercial banks to invest in liquid assets such as cash, gold valued at a price not exceeding current market price and unencumbered investment in approved securities by RBI. This is done to control the credit growth, flow of liquidity and inflation. The SLR rate is percentage of bank's liquid assets to a bank's net demand and time liabilities.
Another important reserve ratio is Cash Reserve Ratio or CRR. both SLR and CRR maintained by the bank to function effectively. Commercial banks earn interests by investing in liquid assets like bonds and securities, parking cash with the RBI doesn’t earn interest.
Anyway, both these tools contribute a great deal to maintaining cash flows and inflation level in the economy. Apart from this here are some other objectives of SLR:
To control credit flow in banks
Helps government in selling their securities, thereby helping in managing debt management program
Prevents commercial banks from liquidating their assets in case RBI increases CRR
The current SLR rate is 18%. While maximum limit of SLR is 40%.
I hope this clarifies what is SLR Rate meaning and definition.
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What is SLR rate?
Rajneesh
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2021-09-22T20:04:28+00:00 2021-09-22T20:11:19+00:00Comment
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