{"id":11847,"date":"2023-03-13T16:47:25","date_gmt":"2023-03-13T11:17:25","guid":{"rendered":"https:\/\/razorpay.com\/blog\/?p=11847"},"modified":"2025-03-07T08:31:09","modified_gmt":"2025-03-07T03:01:09","slug":"statutory-liquidity-ratio","status":"publish","type":"post","link":"https:\/\/razorpay.com\/blog\/business-banking\/statutory-liquidity-ratio\/","title":{"rendered":"Know Everything About Statutory Liquidity Ratio"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">The<\/span> <span style=\"font-weight: 400;\">Statutory Liquidity Ratio or<\/span> <span style=\"font-weight: 400;\">SLR is an essential monetary policy tool that is used by the Reserve Bank of India to examine the liquidity that is there with the bank. It refers to a minimum percentage of aggregate deposits that commercial banks must invest in different liquid assets like gold, cash or any approved securities.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Refer to the sections below to gain insight into the statutory liquidity ratio.\u00a0<\/span><\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_80 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69d09c3b72f54\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69d09c3b72f54\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/razorpay.com\/blog\/business-banking\/statutory-liquidity-ratio\/#How_Does_Statutory_Liquidity_Ratio_Work\" >How Does Statutory Liquidity Ratio Work?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/razorpay.com\/blog\/business-banking\/statutory-liquidity-ratio\/#What_Are_the_Components_of_SLR\" >What Are the Components of SLR?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/razorpay.com\/blog\/business-banking\/statutory-liquidity-ratio\/#Objectives_of_Statutory_Liquidity_Ratio\" >Objectives of Statutory Liquidity Ratio<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/razorpay.com\/blog\/business-banking\/statutory-liquidity-ratio\/#Influence_of_SLR_on_Investors\" >Influence of SLR on Investors<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/razorpay.com\/blog\/business-banking\/statutory-liquidity-ratio\/#Frequently_Asked_Questions\" >Frequently Asked Questions<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"How_Does_Statutory_Liquidity_Ratio_Work\"><\/span><b>How Does Statutory Liquidity Ratio Work?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Statutory liquidity ratio can be referred to as the reserve requirements that banks must have before extending credits to customers. It is among the monetary components that RBI has at its disposal. Besides checking inflation and liquidity, this monetary tool ensures the bank&#8217;s solvency.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The Reserve Bank of India can increase the statutory liquidity ratio up to 40%. Increasing the SLR constricts banks&#8217; ability to lend more and inject cash flow into the Indian economy. SLR determines how many liquid assets banks must have at their disposal to cater to the requirement of depositors.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The government uses this tool to regulate inflation. While increasing the statutory liquidity ratio helps in controlling inflation, reducing it will result in the growth of the economy.\u00a0<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"What_Are_the_Components_of_SLR\"><\/span><b>What Are the Components of SLR?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li aria-level=\"1\">\n<h3><b>Liquid Assets<\/b><\/h3>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Liquid assets are assets that can be easily encashed. For instance, gold, cash reserves, government bonds, treasury bills etc. Even liquid assets encompass securities that qualify under Market borrowing programs and Market stabilisation schemes.\u00a0<\/span><\/p>\n<ul>\n<li aria-level=\"1\">\n<h3><b>Net Demand Liabilities<\/b><\/h3>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">As the name suggests, net demand deposits are all such <a href=\"https:\/\/razorpay.com\/learn\/what-is-liability-in-accounting\/\">liabilities<\/a> that banks have to pay on demand. Net demand liabilities include current deposits, demand drafts, saving bank accounts, etc.\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><b>Time Liabilities<\/b><\/h3>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">In time liabilities, depositors will not be able to withdraw their deposits instantly as the deposits can be repaid upon maturity. It is like the fixed deposit bank accounts where depositors have to wait till the lock-in period is over and access the funds. Examples of time liabilities include staff security deposits, investment deposits etc.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Net Demand and Time Liabilities (NDTL) is the overall sum obtained by combining time liabilities, demand liabilities and other liabilities, and subtracting the deposits that are held in other banks.\u00a0<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Objectives_of_Statutory_Liquidity_Ratio\"><\/span><b>Objectives of Statutory Liquidity Ratio<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The primary objective of the Statutory Liquidity Ratio is to maintain liquidity. However, there are other objectives of this monetary tool.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The statutory liquidity ratio helps in controlling inflation and credit flow.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It leads to an increased investment rate in government securities.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">SLR helps RBI to offer safety assurance to commercial banks.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">When the Reserve Bank of India raises CRR, SLR helps in preventing commercial banks from liquidating assets.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It also aids the government in selling numerous securities.\u00a0<\/span><\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Influence_of_SLR_on_Investors\"><\/span><b>Influence of SLR on Investors<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The statutory liquidity ratio is one of the key components that determine the base rate in the Indian economy. Hence, RBI and Indian Government work together to ensure that the statutory liquidity ratio is balanced.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">RBI considers the statutory liquidity ratio as a reference rate to determine the base rate. It is the rate below which banks cannot lend money to customers. Such rates are fixed to ensure transparency related to borrowing and lending, thereby bringing discipline and coherence to credit market operations.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The base rate also influences the affordability of loans. It aids financial institutions to bring down the cost of lending. Hence, business bodies opting for funds must have a clear idea of SLR.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Banking has faced prominent evolution. The evolution of the fintech space has had a significant impact on businesses today.<\/span><\/p>\n<div style=\"text-align: center;\"><a style=\"border-radius: 3px; background: #528FF0; padding: 15px; font-weight: 600; cursor: pointer; text-decoration: none; color: white;\" href=\"https:\/\/razorpay.com\/x\/?r=blog_cta_business_banking_statutory_liquidity_ratio&amp;utm_source=blog&amp;utm_medium=cta\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">Explore RazorpayX<\/a><\/div>\n<p>&nbsp;<\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"https:\/\/razorpay.com\/x\"><span style=\"font-weight: 400;\">RazorpayX<\/span><\/a><span style=\"font-weight: 400;\"> allows business owners to open<\/span><a href=\"https:\/\/razorpay.com\/x\/current-accounts\/?utm_source=direct&amp;utm_medium=website\"><span style=\"font-weight: 400;\"> current accounts<\/span><\/a><span style=\"font-weight: 400;\">,<\/span><a href=\"https:\/\/razorpay.com\/x\/tax-payments\/\"><span style=\"font-weight: 400;\"> pay taxes<\/span><\/a><span style=\"font-weight: 400;\">, schedule payments,<\/span><a href=\"https:\/\/razorpay.com\/x\/vendor-payments\/\"><span style=\"font-weight: 400;\"> pay vendors<\/span><\/a><span style=\"font-weight: 400;\"> seamlessly and check invoices from a single dashboard. This saves valuable time and effort.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">It fills the gap between advanced banking solutions and finance professionals. It allows easy accounting software integration.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">With<\/span><a href=\"https:\/\/razorpay.com\/payroll\/\"><span style=\"font-weight: 400;\"> RazorpayX Payroll<\/span><\/a><span style=\"font-weight: 400;\">, businesses can automate salary payments and provide insurance policies to their employees.<\/span><\/li>\n<\/ul>\n<div style=\"text-align: center;\"><a style=\"border-radius: 3px; background: #528FF0; padding: 15px; font-weight: 600; cursor: pointer; text-decoration: none; color: white;\" href=\"https:\/\/razorpay.com\/x\/?r=blog_cta_business_banking_statutory_liquidity_ratio&amp;utm_source=blog&amp;utm_medium=cta\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">Explore RazorpayX-powered Current Account<\/a><\/div>\n<div><\/div>\n<h2><span class=\"ez-toc-section\" id=\"Frequently_Asked_Questions\"><\/span>Frequently Asked Questions<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div><\/div>\n<div><div id=\"rank-math-rich-snippet-wrapper\"><div id=\"rank-math-faq\" class=\"rank-math-block\">\n<div class=\"rank-math-list \">\n<div id=\"faq-1\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \">What is the difference between SLR and CRR?<\/h3>\n<div class=\"rank-math-answer \">\n\n<p>Cash Reserve Ratio (CRR) refers to the percentage of deposits that banks must keep with the Reserve Bank of India. On the other hand, Statutory Liquidity Ratio (SLR) is the minimum percentage of deposit that banks have to keep in their vault in the form of liquid assets. In the case of SLR, liquid assets are maintained by financial institutions, on the other hand, in CRR cash reserves are controlled by RBI.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-2\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \">What happens if Statutory Liquidity Ratio is not maintained?<\/h3>\n<div class=\"rank-math-answer \">\n\n<p>In case a commercial bank does not maintain statutory liquidity, a penalty of 3% will be levied on the bank rate annually by RBI. The amount will increase to 5% if the same is defaulted on the next working day too.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-3\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \">What is the formula used to calculate the statutory liquidity ratio?<\/h3>\n<div class=\"rank-math-answer \">\n\n<p>The formula that enables one to compute SLR is -<br \/>\nSLR  = Liquid Asset \/ (Net Demand + Time Liability) X 100<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-4\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \">Does a bank earn a return from the statutory liquidity ratio?<\/h3>\n<div class=\"rank-math-answer \">\n\n<p>Banks earn interest on the liquid assets that are parked along with approved securities. With a Cash reserve ratio, banks earn zero returns on the cash parked with RBI.<\/p>\n\n<\/div>\n<\/div>\n<\/div>\n<\/div><\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>The Statutory Liquidity Ratio or SLR is an essential monetary policy tool that is used by the Reserve Bank of India to examine the liquidity that is there with the bank. It refers to a minimum percentage of aggregate deposits that commercial banks must invest in different liquid assets like gold, cash or any approved<\/p>\n","protected":false},"author":102,"featured_media":11850,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[27],"tags":[],"class_list":{"0":"post-11847","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business-banking"},"_links":{"self":[{"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/posts\/11847","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/users\/102"}],"replies":[{"embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/comments?post=11847"}],"version-history":[{"count":2,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/posts\/11847\/revisions"}],"predecessor-version":[{"id":21330,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/posts\/11847\/revisions\/21330"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/media\/11850"}],"wp:attachment":[{"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/media?parent=11847"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/categories?post=11847"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/tags?post=11847"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}