Full Form of SLR :
Statutory Liquidity Ratio
SLR Full Form is Statutory Liquidity Ratio. SLR refers to the term used by the Indian Government for the purposes of the reserve requirement. This reserve requirement is required by the commercial banks of the country for maintenance in the form of gold, and government approved securities prior to providing credit to their customers. Statutory Liquidity ratio, which will hereinafter be referred to as SLR throughout the article, is determined by the Central Bank of the country, the Reserve Bank of India (Abbreviated as RBI. It has to be strictly maintained by all the commercial banks under the RBI’s supervision with the aim of controlling and expanding bank credit.
The SLR is evaluated by evaluating the percentage of sum total demand and time liabilities. In this, time liabilities are liabilities that the commercial banks are duty bound to pay to their customers after a particular period that is mutually agreed upon. Demand Liabilities are those deposits of the customers that are to be paid on demand. One instance of time liabilities is a 6 month fixed deposit that is to be paid on demand but is to be paid after six months. One instance of demand liability is the deposit that is maintained in current account or saving account, which is to be paid on demand by means of a withdrawal in, for example, the form of a cheque.
The SLR is usually used for the purposes of controlling fuel growth and inflation, by decreasing or increasing it respectively. This is essential in controlling the flow of bank credit. Any change in SLR related policies dramatically affects the commercial banks of the country and therefore, harbors great relevance in the economics of India. As it is highly important, it is important that we explore some other important aspects of SLR. So, here are five points about SLR that everyone must know about:
Usage of SLR
SLR is particular to Indian banking system. It is used by commercial banks and is indicative of the minimum percentage of deposits, which the banks have to mandatorily require to maintain in the form of government approved securities such as gold, cash or other securities. Thus, in simple words, it is a ratio of cash and other approved liability. It is essential for the growth of bank credit in the country.
Time liabilities, as already mentioned, are liabilities which are imposed upon the banks to pay within the time frame of one month, on competition of the maturity period. The maximum limit imposed upon the banks is 40 percent and the minimum limit is 0 in the country. It is the responsibility of the Central Bank, RBI, to determine SLR from time to time.
There are certain statutory requirements that need to be complied with for the temporary placement of money in the form of government bonds. Following this statutory requirement, RBI fixes the limits on SLR. It is a common practice in banks to keep SLR rate higher due to several issues such as near-term reductions and poorly credible lending options.
Objectives of SLR
SLR was introduced in the Indian Banking Regime for the purposes of regulating credit flow of banks in the country. The main objectives of introducing SLR are as follows:
- For the purposes of controlling expansion of bank credit and this can be done by decreasing or increasing expansion of bank credit.
- For ensuring the issues relating to solvency in banks.
- To ensure that all commercial banks make investments in several government securities such as government bonds.
Supposedly if a bank fails to ensure the requisite level of SLR, then it is subjected to a penalty that RBI imposes. Such bank has to pay the penal interest which is presently at the rate of 3 percent p.a. above the concerned bank rate on the day of default. However, recently a circular was released under the authority of the Department of Banking Operations and Development of the RBI that stated that where a defaulter bank remains a defaulter on the following working day then there shall be an increase of penal interest up to 5 percent p.a. above the bank rate.
The restriction is imposed upon the banks so as to ensure that funds are made available to customers as soon as possible. Government securities and gold are covered along with cash, as they are safe assets and highly liquid. RBI is the primary authority that determines the SLR rate and can make variations in SLR for controlling inflation, sucking liquidity in the market, tightening of measures so that money of the customers is safeguarded. Thus, the preceding paragraphs clearly highlight the important objectives of SLR in the Indian economy, which is one of the fastest growing economies in the world. So, it is encumbered upon the RBI to ensure a healthy banking regime.
Difference between Cash reserve ratio (abbreviated as CRR) and SLR
Before moving to the main subject of discussion, let us go through the concept and fundamentals of CRR. CRR, which is also known as the Reserve Requirement, is essentially a regulation by the central bank, which is widely employed across major banking regimes of the world. It basically places the minimum fraction, which is that of the customer deposits and notes that every commercial bank must mandatorily hold in the form of reserves. These reserves come generally in the form of deposits, which are made with the Central Bank, or is cash stored in the bank vaults.
CRR is instrumental in the monetary policy of any economy and greatly influences the nation’s interest rates and borrowing by varying a number of funds for the purposes of making loans out of it. Among the western bankers, CRR is generally not changed as any change results in liquidity problems for those banks which have low excess reserves. However, in China, the rate is often used as an inflation-fighting tool.
It must have become considerably clear what CRR is. A major confusion is between the SLR and CRR, particularly in the Indian case. There is no gainsaying that SLR and CRR both are fundamental instruments of RBI for regulating the supply of money in banks. However, there are major differences in between them.
SLR limits the leverage of a bank to float more money in the economy whereas CRR is essentially the portion of deposits which banks have to mandatorily maintain with the RBI for reducing liquidity in the banking regime. Thus, SLR regulates the flow of credit across the country whereas CRR regulates liquidity. Another major difference between the two is that for meeting the requirements of SLR banks use gold, cash or government approved securities, however, with CRR, banks use only cash. CRR is a key instrument in controlling inflation.
Value and formula
Under this head, we shall know about the mode of determining the value and formula for SLR. The quantum of SLR is evaluated as a percentage of the sum total demand and time liabilities, both terms have been explained before. The formula for calculating the same is as follows:
SLR rate = (liquid assets / (demand + time liabilities)) × 100%
It is the responsibility of the RBI to fix the SLR percentage. An essential change happened with the amendment of the Banking Regulation Act 1949 in the year 2007 by which the floor rate of 25 percent for SLR was taken away from the Act.
SLR Full Form : Single Lens Reflex Camera
SLR Full Form is also Single Lens Reflex Camera. Cameras with this system use a prism and mirror system ( a reflex from the reflection of the mirror). This system lets the photographer to directly view the picture to be captured through the lens. This is very different from the viewfinder cameras in which the imaged viewed is different from what is captured.
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