What is SLR? Full Form, Meaning, and Definition

Full Form and Meaning of SLR

SLR stands for Statutory Liquidity Ratio. It is the minimum amount of money that commercial banks must keep in the form of liquid assets (like cash, gold, or government bonds) before they can lend money to people. This is a rule set by the government to ensure banks stay safe and have enough money for emergencies.

Definition of SLR

SLR is a percentage of a bank’s total deposits that must be kept aside as liquid assets. It is a requirement set by the Reserve Bank of India (RBI). For example, if a bank receives ₹100 as deposits, they must keep a certain amount (say 18%) as liquid assets and can lend out the remaining amount.

Why is SLR Important?

1. For Bank Safety: It ensures that banks have enough money to meet customer demands and avoid running out of cash.
2. For Stability: SLR helps keep the banking system stable and prevents banks from lending too much money.
3. For Government Control: It helps the government control inflation and regulate the money supply in the economy.

Example of SLR

If a bank has ₹1,00,000 in deposits and the SLR is set at 18%, the bank must keep ₹18,000 in cash, gold, or government bonds. The rest can be used to lend to customers.

SLR helps ensure banks are prepared for emergencies and are following government rules to keep the financial system safe.