Statutory liquidity ratio refers to the minimum percentage of time and demand deposits, required to be kept by commercial banks with themselves.
SLR is maintained in the form of designated liquid assets such as excess reserves, unencumbered, government and other approved securities, or current account balances with other banks.
It is one of the tools of the monetary policy of the RBI to control the money supply.
Change in SLR affects the freedom of banks to sell government securities or borrow against them from the central bank.
An increase in SLR reduces the cash reserves of the commercial bank decreasing its ability to advance loans to the general public.
It reduces the credit creation and controls the money supply.
A decrease in SLR increases the cash reserves of the commercial bank increasing its ability to advance loans to the general public.
It increases the credit creation and controls the money supply.