Economics • Banking & FinanceEasy
What is the primary function of the 'Statutory Liquidity Ratio (SLR)' maintained by commercial banks in India?
A. To provide emergency liquidity support exclusively for agricultural cooperative lending institutions
B. To ensure banks hold a specified percentage of their net demand and time liabilities in liquid assets like government securities✓ Correct Answer
C. To regulate foreign exchange inflows and prevent excessive volatility in the rupee exchange rate
D. To finance infrastructure projects directly managed by state government corporations
💡 Solution & Explanation
SLR requires scheduled commercial banks to maintain a prescribed percentage of their net demand and time liabilities in safe liquid assets such as cash, gold, or approved government securities. Unlike the Cash Reserve Ratio, SLR assets earn interest for the holding banks while serving as a prudential solvency safeguard. The Reserve Bank of India is statutorily empowered under the Banking Regulation Act to fix and revise this ratio.
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