What does the 'Statutory Liquidity Ratio' (SLR) require commercial banks to maintain, and under which legislative act is it mandated?

💡 Solution & Explanation

The Statutory Liquidity Ratio requires commercial banks to maintain a prescribed percentage of their net demand and time liabilities in liquid assets such as cash, gold, or approved unencumbered government securities. This requirement is legally mandated under Section 24 of the Banking Regulation Act, 1949, and is distinct from the cash reserve ratio maintained with the central bank. SLR ensures that banks possess adequate safe assets to meet sudden depositor demands while also guaranteeing a captive market for government debt issuance. A related financial concept is the Liquidity Coverage Ratio under Basel III, which mandates high-quality liquid assets for stress scenarios.