Under the guidelines of the Reserve Bank of India, what does the term 'Statutory Liquidity Ratio (SLR)' require commercial banks to do?

💡 Solution & Explanation

The Statutory Liquidity Ratio requires commercial banks to maintain a designated minimum percentage of their Net Demand and Time Liabilities in liquid assets such as unencumbered government securities, gold, or cash with themselves before extending credit. This mandatory requirement enforced by the Reserve Bank of India ensures bank solvency and serves as a vital monetary policy instrument to control credit expansion in the economy. Unlike the Cash Reserve Ratio where funds are parked directly with the central bank, SLR assets are held within the bank's own vaults or approved depositories. Banking sector regulations are indispensable for competitive finance examinations.