Under which act is the Statutory Liquidity Ratio (SLR) prescribed?

The correct answer is Banking Regulation Act, 1949.

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• The Statutory Liquidity Ratio (SLR) is prescribed under Section 24 (2A) of the Banking Regulation Act, 1949.
• SLR mandates banks to maintain a minimum percentage of deposits in liquid assets like cash, gold, or government securities.

Key Points

• SLR is a tool used by RBI to regulate liquidity, inflation, and credit growth in the economy.
• Increasing SLR helps control inflation by restricting credit availability.
• Decreasing SLR encourages economic growth by enabling more lending.
• SLR applies to scheduled commercial banks and impacts their lending capacity.
• SLR assets include cash, gold, and approved government securities.

Additional Information

• Banking Regulation Act, 1949
  • Legislation governing banking operations and regulations in India.
  • Empowers RBI to fix SLR for banks.
• Reserve Bank of India (RBI)
  • Uses SLR as a monetary policy tool to manage money supply and inflation.
  • Regularly reviews and adjusts the SLR rate as per economic conditions.
• SLR vs CRR
  • CRR is the cash amount banks must keep with RBI without earning interest.
  • SLR is the reserve in liquid assets where banks earn interest.
• Impact of SLR Changes
  • Higher SLR reduces funds available for lending, controlling inflation.
  • Lower SLR increases lending capacity, fostering economic growth.