Statutory Liquidity Ratio
- October 3, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Statutory Liquidity Ratio
Subject: Economy
Context:
Banks’ excess holdings of SLR securities moderate to 8.8% from 10.4 per cent at end-March 2022.
Details:
- Reduction in the excess holdings of statutory liquidity ratio (SLR) securities of Scheduled Commercial Banks (SCBs) indicates credit rise.
- Current SLR in India – 18.00% (minimum required)
- Excess SLR holdings provide collateral buffers to banks for availing funds under the LAF and are also a component of the liquidity coverage ratio (LCR).
Concept:
Statutory Liquidity Ratio:
- Statutory Liquidity Ratio popularly called SLR is the minimum percentage of deposits that the commercial bank maintains through gold, cash and other securities.
- These deposits are maintained by the banks themselves and not with the RBI or Reserve Bank of India unlike the Cash Reserve Ratio.
- Banks earn returns on money parked as SLR
- Section 24 and Section 56 of the Banking Regulation Act 1949 mandates all scheduled commercial banks, local area banks, Primary (Urban) co-operative banks (UCBs), state co-operative banks and central co-operative banks in India to maintain the SLR.
- It comprises of– cash, gold and SLR securities, comprising central and state government securities:
- Dated securities
- Treasury Bills of the Government of India;
- Dated securities of the Government of India issued from time to time under the market borrowing programme and the Market Stabilization Scheme;
- State Development Loans (SDLs) of the State Governments issued from time to time under the market borrowing programme; and
- Any other instrument as may be notified by the Reserve Bank of India
The liquidity coverage ratio (LCR)
- It refers to the proportion of highly liquid assets held by financial institutions, to ensure their ongoing ability to meet short-term obligations.
- The LCR was introduced as part of the Basel III reforms following the 2008 global financial crisis and was finalised by the Basel Committee on Banking Supervision in January 2013.
- LCR = High-Quality Liquid Asset Amount (HQLA) / Total Net Cash Flow Amount
Read Basel Accords