Economics • Banking & FinanceMedium
Consider the following statements regarding the Statutory Liquidity Ratio (SLR) in the Indian banking system:
A. It must be maintained exclusively in the form of cash balances with the Reserve Bank of India
B. It represents the proportion of net demand and time liabilities that banks must hold in liquid assets such as government securities✓ Correct Answer
C. It is used by commercial banks solely to finance short-term agricultural credit requirements
D. It remains fixed at twenty-five percent permanently under statutory provisions of the Banking Regulation Act
💡 Solution & Explanation
Under Section 24 of the Banking Regulation Act, 1949, scheduled commercial banks in India are required to maintain a specified percentage of their net demand and time liabilities in liquid assets like cash, gold, or approved government securities. Cash balances with the central bank refer to the Cash Reserve Ratio rather than SLR. The Reserve Bank of India possesses statutory powers to adjust the SLR ceiling and floor within prescribed legal limits to regulate credit creation. Holding these securities ensures that banks retain solvency during sudden deposit withdrawals.
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