SLR FULL FORM IN BANKING

In this article you get to know about SLR full from and other different abbreviations of SLR in various fields. SLR full form refers to Statutory Liquidity Ratio.

Statutory Liquidity Ratio is the minimum percentage of deposits that banks are required to maintain in the form of liquid assets, such as cash, gold, or government securities, as mandated by the central bank of a country. The purpose of SLR is to ensure that banks have sufficient liquidity to meet their obligations and to provide a cushion against unexpected deposit withdrawals. In India, the Reserve Bank of India sets the SLR for banks. As of September 2021, the SLR in India is 18%, which means that banks are required to maintain at least 18% of their Net Demand and Time Liabilities in the form of liquid assets.

Example which illustrate how SLR works:

Suppose a bank has NDTL of Rs. 100 crores, which includes both demand and time liabilities. As per the current SLR in India, the bank is required to maintain liquid assets worth at least 18% of its NDTL, which would be Rs. 18 crores (18% of Rs. 100 crores). The bank can maintain its SLR in various forms of liquid assets, such as cash, gold, or government securities. Suppose the bank chooses to maintain Rs. 10 crores in cash, Rs. 5 crores in gold, and Rs. 3 crores in government securities. These assets add up to Rs. 18 crores, which is exactly 18% of the bank’s NDTL. If the bank falls short of maintaining the required SLR, it may face penalties or restrictions on its ability to lend or accept deposits. On the other hand, if the bank maintains a higher SLR than required, it may limit its profitability as it cannot earn interest on the excess liquid assets.

The purpose of Statutory Liquidity Ratio is to ensure that banks maintain a certain percentage of their deposits in the form of liquid assets such as cash, gold, or government securities. This requirement ensures that banks have sufficient liquidity to meet their obligations and provide a cushion against unexpected deposit withdrawals. SLR also helps the central bank to regulate the credit flow in the economy by controlling the availability of funds for banks to lend. It acts as a tool for the central bank to maintain monetary stability in the economy by influencing the flow of credit and ensuring that banks do not run into liquidity problems that could lead to a financial crisis. Overall, the SLR serves as a mechanism for maintaining the stability of the banking system and promoting financial stability in the economy. The SLR is an important tool for the central bank to regulate the liquidity position of banks and ensure the stability of the banking system.

If the Statutory Liquidity Ratio increases, banks are required to maintain a higher percentage of their deposits in the form of liquid assets such as cash, gold, or government securities. This means that banks will have less money available for lending and investing in other income-generating activities.

An increase in SLR can lead to a decrease in credit flow in the economy as banks have less money available for lending. This can have a contractionary effect on the economy, slowing down growth and investment. On the other hand, an increase in SLR can also lead to increased stability in the banking system as banks are required to hold a higher proportion of their deposits in liquid assets, which can act as a buffer against unexpected deposit withdrawals or market shocks. This can help prevent financial crises and promote long-term financial stability. The impact of an increase in SLR depends on the specific economic and financial conditions prevailing at the time of the change. While it may limit credit growth in the short term, it can also have positive long-term effects by promoting financial stability and sustainability.

Different abbreviations of SLR in various fields are as follows

CONCLUSION:

Dear reader in this article you get to know about SLR full from and SLR term used in various other fields, If you have any query regarding this article kindly comment below.