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      Question

      The Statutory Liquidity Ratio (SLR) is one of the key

      instruments through which the Reserve Bank of India regulates bank liquidity. Which of the following correctly describes SLR?
      A The percentage of deposits that banks must keep as cash with the RBI Correct Answer Incorrect Answer
      B The ratio of a bank's liquid assets to its total deposits, used to assess short-term solvency Correct Answer Incorrect Answer
      C The minimum percentage of a bank's net demand and time liabilities (NDTL) that must be maintained in the form of gold, cash, or approved securities primarily government securities Correct Answer Incorrect Answer
      D The minimum capital that a bank must hold as a percentage of its risk-weighted assets Correct Answer Incorrect Answer
      E The maximum percentage of its deposits that a bank can lend to any single borrower Correct Answer Incorrect Answer

      Solution

      SLR (Statutory Liquidity Ratio) requires banks to maintain a minimum percentage of their Net Demand and Time Liabilities (NDTL) in the form of liquid assets primarily government and other approved securities, and gold. The current SLR is 18% of NDTL. SLR serves two purposes: (1) it ensures banks maintain a cushion of liquid assets and (2) it channels bank funds into government securities, financing government borrowing. The cash portion of SLR is separate from CRR (Cash Reserve Ratio), which requires banks to maintain a percentage of NDTL as actual cash with the RBI. Capital adequacy (CRAR) is a separate concept governed by Basel III.

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