SLR: Statutory Liquidity Ratio and CRAR Capital to risk-weighted Assets Ratio

The statutory Liquidity Ratio or SLR is the minimum percentage of deposits that commercial banks have to maintain in the form of liquid cash, gold, or any other securities. It is the reserve requirement that banks are expected to keep before offering credit to customers. The SLR is to be fixed by the RBI. Mainly the Reserve Bank of India is to decide the SLR which to be maintained by other banks. The RBI specifies the SLR status of securities issued by the Government of India and the State Government. The SLR is commonly used to control inflation and fuel growth, by increasing and decreasing the money supply. By changing the level of SLR, the Reserve Bank of India has to increase or decrease the bank credit expansion.
Formula of SLR: SLR rate = (liquid assets / (demand + time liabilities)) × 100%
The main objectives of SLR:
One of the main objectives of SLR is to prevent commercial banks from liquidating their liquid assets when the RBI has to raise the CRR.
Mainly the SLR is used by the RBI, which controls the credit flow in the banks.
The SLR rate makes commercial banks invest in government securities.
Making banks invest, the portion of their deposits in government securities is to ensure the solvency of such banks.
Components of SLR:
Liquid Assets: Liquid assets are easily converted into cash, gold, government-approved securities, and cash reserves.
Net demand and time liabilities (NDLT): NDLT is the time liabilities and total demand of the public, which are to be held by the banks with other banks. They include current deposits and demand liabilities of a portion of savings bank deposits.
The liabilities that the banks are liable to pay within one month, due to the completion of the maturity period. SLR limit is 40% maximum and the minimum limit is 0 in India.
It means the capital-to-risk-weighted Assets Ratio. The CRAR ratio is to be utilized to secure depositors and then boost the efficiency and stability of the financial system all over the wor