Statutory liquidity ratio refers to the amount that the
commercial banks require to maintain in the form of gold or govt.
approved securities before providing credit to the customers. Here by approved securities we mean, bond and shares of different companies.
Statutory Liquidity Ratio is determined and maintained by the Reserve
Bank of India in order to control the expansion of bank credit. It is
determined as percentage of total demand and time liabilities. Time
Liabilities refer to the liabilities, which the commercial banks are
liable to pay to the customers after a certain period mutually agreed
upon and demand liabilities are such deposits of the customers which are
payable on demand. example of time liability is a fixed deposits for 6
months, which is not payable on demand but after six months. example of
demand liability is deposit maintained in saving account or current
account, which are payable on demand through a withdrawal form of a
cheque. SLR is used by bankers and indicates the minimum percentage of
deposits that the bank has to maintain in form of gold,cash or other
approved securities.Thus, we can say that it is ratio of cash and some
other approved liabilities(deposits). It regulates the credit growth in
India
The liabilities that the banks are liable to pay within one month's time, due to completion of maturity period, are also considered as time liabilities. The maximum limit of SLR is 40% and minimum limit of SLR is 23% In India, Reserve Bank of India always determines the percentage of SLR. There are some statutory requirements for temporarily placing the money in government bonds. Following this requirement, Reserve Bank of India fixes the level of SLR. At present, the minimum limit of SLO that can be set by the Reserve Bank is 23% AS ON September 2013 Objectives of SLR: The main objectives for maintaining the SLR ratio are the following:
If any Indian bank fails to maintain the required level of Statutory Liquidity Ratio, then it becomes liable to pay penalty to Reserve Bank of India. The defaulter bank pays penal interest at the rate of 3% per annum above the Bank Rate, on the shortfall amount for that particular day. But, according to the Circular, released by the Department of Banking Operations and Development, Reserve Bank of India; if the defaulter bank continues to default on the next working day, then the rate of penal interest can be increased to 5% per annum above the Bank Rate. This restriction is imposed by RBI on banks to make funds available to customers on demand as soon as possible. Gold and government securities (or gilts) are included along with cash because they are highly liquid and safe assets.
The liabilities that the banks are liable to pay within one month's time, due to completion of maturity period, are also considered as time liabilities. The maximum limit of SLR is 40% and minimum limit of SLR is 23% In India, Reserve Bank of India always determines the percentage of SLR. There are some statutory requirements for temporarily placing the money in government bonds. Following this requirement, Reserve Bank of India fixes the level of SLR. At present, the minimum limit of SLO that can be set by the Reserve Bank is 23% AS ON September 2013 Objectives of SLR: The main objectives for maintaining the SLR ratio are the following:
- to control the expansion of bank credit. By changing the level of SLR, the Reserve Bank of India can increase or decrease bank credit expansion.
If any Indian bank fails to maintain the required level of Statutory Liquidity Ratio, then it becomes liable to pay penalty to Reserve Bank of India. The defaulter bank pays penal interest at the rate of 3% per annum above the Bank Rate, on the shortfall amount for that particular day. But, according to the Circular, released by the Department of Banking Operations and Development, Reserve Bank of India; if the defaulter bank continues to default on the next working day, then the rate of penal interest can be increased to 5% per annum above the Bank Rate. This restriction is imposed by RBI on banks to make funds available to customers on demand as soon as possible. Gold and government securities (or gilts) are included along with cash because they are highly liquid and safe assets.
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