STATUTORY LIQUIDITY RATIO (SLR)

Commercial banks are required to maintain in the form of cash, gold reserves, RBI approved securities before giving credit to the customers. It is directed under section 24 of the Banking regulation Act 1949. The SLR is determined by the RBI. It is usually used to control inflation and fuel growth by increasing and decreasing money supply. It controls the credit growth in India. The maximum limit of SLR is 40% and the minimum limit of SLR is 0 in India. The RBI always decides the percentage of SLR, If banks fails to control the required level of the SLR then it becomes responsible to pay penalty to RBI. When SLR is high banks have less money for commercial operations and hence less money to lend out when it happens, home loan interest rates often rise when the SLR is low, similarly home loan interest rates are likely to fall.