Statutory Liquidity Ratio (SLR)
Source: CMIE Economic Outlook, 1 Finance Research
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What does the Statutory Liquidity Ratio (SLR) data represent?
- The Statutory Liquidity Ratio (SLR) data represents the percentage of a bank's total deposits that must be maintained in the form of liquid assets, such as cash, gold, or government securities.
- Set by the central bank (Reserve Bank of India in India), SLR is a regulatory requirement designed to ensure the bank's liquidity and financial stability.
What is the significance of the Statutory Liquidity Ratio (SLR) data?
- It is a critical tool in RBI’s monetary policy and is used to manage money supply, interest rates and bank credit.
- By adjusting the SLR, the RBI can influence the amount of funds available for banks to lend. Increasing SLR can reduce the money supply, which might lead to higher lending rates and thus help to control inflation, while decreasing SLR can increase the money supply, leading to lower rates.
- The level of SLR can influence economic growth and demand. A lower SLR can encourage lending and investment, boosting economic activity, while a higher SLR can have a cooling effect.
How to interpret the Statutory Liquidity Ratio (SLR) data?
- A higher SLR ensures that banks maintain a larger buffer of liquid assets, enhancing their stability and reducing the risk of bank failures.
- Trends in SLR helps to understand the RBI's approach to monetary policy and its impact on the banking sector's liquidity, lending capacity, and overall financial health.
- SLR adjustments affect borrowing behaviour among consumers and businesses, influencing their spending and investment decisions.
- SLR adjustments are effective in managing inflation, especially in relation to the RBI's inflation targets.
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Cash Reserve Ratio (CRR)
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Marginal Cost of Funds based Lending Rates (MCLR)
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Term Deposit Rate
