Statutory Liquidity Ratio (SLR) is a monetary policy instrument used by the Reserve Bank of India (RBI) to control the amount of money that banks can lend. It is the minimum percentage of their net demand and time liabilities (NDTL) that banks are required to hold in liquid assets, such as cash, gold, and government securities.
The SLR is expressed as a percentage of NDTL. For example, if the SLR is 20%, then banks must hold 20% of their NDTL in liquid assets.
The RBI can change the SLR as needed to achieve its monetary policy goals. For example, if the RBI wants to reduce the amount of money in circulation, it can increase the SLR. This will force banks to hold more liquid assets, which will reduce the amount of money that they can lend.
Here are some multiple choice questions on SLR:
- What is the purpose of the SLR?
- To control the money supply
- To control inflation
- To ensure the stability of the banking system
- All of the above
The answer is all of the above. The SLR is used to control the money supply, which can help to control inflation. It can also help to ensure the stability of the banking system by requiring banks to hold enough liquid assets to meet their obligations.
- What are the liquid assets that banks can hold to meet the SLR requirement?
- Cash
- Gold
- Government securities
- All of the above
The answer is all of the above. Banks can hold cash, gold, and government securities to meet the SLR requirement.
- What happens if a bank fails to meet the SLR requirement?
- The RBI will impose a penalty on the bank
- The bank will be forced to close down
- The bank will be allowed to continue operating, but it will be restricted in its lending activities
The answer is the RBI will impose a penalty on the bank. The RBI may also take other actions, such as restricting the bank’s lending activities.