Economics • Banking & FinanceMedium
What does 'Statutory Liquidity Ratio (SLR)' require commercial banks in India to do?
A. Maintain a specified percentage of their net demand and time liabilities in liquid assets like cash, gold, or approved government securities.✓ Correct Answer
B. Keep a certain proportion of deposits exclusively with international financial institutions.
C. Allocate at least 40 percent of total credit to the agricultural sector.
D. Maintain a capital buffer to absorb unexpected market shocks.
💡 Solution & Explanation
Under Section 24 of the Banking Regulation Act, 1949, commercial banks in India are legally mandated to maintain a specified percentage of their net demand and time liabilities in liquid assets such as cash, gold, or approved government securities, known as the Statutory Liquidity Ratio. Other options confuse SLR with priority sector lending guidelines or capital adequacy ratios. The instrument is deployed by the central bank to control credit expansion in the banking system. Central banking tools are staple topics in Indian economy syllabi.
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