Q. Consider the following statements regarding the Statutory Liquidity Ratio (SLR):
1.The SLR component must be maintained by banks in liquid assets like gold, unencumbered approved securities (G-Secs), and cash.
2.The primary purpose of SLR is to check the expansion of credit by commercial banks and to ensure the banks’ long-term solvency.
3.The RBI has the power to raise the maximum limit of SLR up to 40% of a bank’s Net Demand and Time Liabilities (NDTL).
How many of the statements given above are correct?
Explanation:
Statement 1: Correct. SLR is the fraction of a bank’s NDTL that it must maintain in the form of specified liquid assets, which include cash, gold, and other unencumbered securities (like G-Secs).
Statement 2: Correct. SLR serves a dual purpose: it controls the credit expansion capacity of banks (monetary tool) and, more importantly, it ensures the bank has enough liquid assets to meet any sudden large-scale demand for withdrawals, thus ensuring its liquidity and stability/solvency.
Statement 3: Incorrect. The RBI’s power to specify the SLR was amended, and the statutory minimum floor of 25% and the maximum ceiling of 40% were removed by the Banking Regulation (Amendment) Act, 2016. The RBI is now free to set the ratio, making the 40% ceiling obsolete.
