Related Note - [Cash Reserve Ratio (CRR)](Cash%20Reserve%20Ratio%20(CRR).md) 1. ==The Statutory Liquidity Ratio under the Banking Regulation Act, 1949 was originally conceived as a **prudential** requirement to ensure availability of sufficient liquid resources in relation to the liabilities by banks for meeting sudden drain on their resources. == 2. In other words: Banks issue deposits to public. To maintain the ability of the bank to return them, it is necessary to manage the risk of the portfolio of the bank. RBI ensures this through SLR so that some of the liabilities(deposits) are invested in the least risky assets. ### Maintenance of SLR 1. It is prescribed under Section 24 of the Banking Regulation Act, 1949, while [[Cash Reserve Ratio (CRR)|CRR]] prescribed under Section 42(1) of the RBI Act, 1934 2. SLR is over and above CRR. So both have to be maintained. SLR is maintained with banks themselves, while CRR balances (along with excess reserves form part of central bank reserves) as they are parked with RBI. 3. SLR is maintained as a [percentage](https://rbi.org.in/home.aspx#:~:text=CRR,%3A%2018.00%25) of their Net Time and Demand Liabilities (NDTL) as on the last day (earlier Friday) of the second preceding fortnight (1-15th day/16th to last day) (effective from ==[December 15, 2025](RBI_Notification_20251211_Reserve%20Bank%20of%20India%20(Commercial%20Banks%20–%20Cash%20Reserve%20Ratio%20and%20Statutory%20Liquidity%20Ratio)%20Amendment%20Directions,%202025.pdf)) in form of cash, gold and unencumbered and approved government securities (called SLR -Eligible Assets/SLR assets) which are defined as: 1. Cash 1. Cash as defined in these [Directions](https://www.rbi.org.in/scripts/BS_ViewMasDirections.aspx?id=13160). 2. The funds deposited with RBI under SDF are eligible asset for maintenance of SLR, but are not adjusted for CRR, as stated in [Reserve Bank of India (Commercial Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Directions, (2025)](https://www.rbi.org.in/scripts/BS_ViewMasDirections.aspx?id=13160) 2. SLR securities: 1. Dated securities of the Government of India issued from time to time under the market borrowing programme and the Market Stabilization Scheme; 2. Treasury Bills of the Government of India; and 1. CMBs form part of T-Bills for maintenance for SLR since [Sept 1, 2009](RBI_Notification_20090901_Cash%20Management%20Bills%20eligible%20as%20SLR%20Securities.pdf) 3. State Development Loans (SDLs) of the State Governments issued from time to time under the market borrowing programme. 4. Securities offered as collateral under [[Marginal Standing Facility (MSF), 2011|Marginal Standing Facility (MSF), 2011]] carved out of the required SLR portfolio, or FALLCR 5. those acquired from RBI through reverse repo under [LAF](Liquidity%20Adjustment%20Facility%20(LAF).md#Current)(from [October 3, 2016](https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=10640)) and 1. From [July 27, 2010](RBI_Notification_20100727_Maintenance%20of%20SLR.pdf) to October 3, 2016, those acquired from RBI through reverse repo under LAF were not eligible as SLR asset. 6. those received as collateral from [[Repos and Tri-Party Repo#^a11ed6|market repo transactions]] 7. ~~Oil bonds~~ - They are not reckoned as an eligible investment in Government securities for their SLR, but they qualify as eligible securities for Repos, Reverse Repos and Marginal Standing Facility (MSF). 3. Gold, as defined in Section 5(g) of the Banking Regulation Act, 1949 (10 of 1949), which is 1. "gold" includes gold in the form of coin, whether legal tender or not, or in the form of bullion or ingot, whether refined or not; 1. Though the banks may invest in gold (including gold ornaments) to maintain liquid assets, such investments are of unproductive nature and yield no income, except price increase, which is subject to speculative forces. 2. Keeping these aspects in view as well as the difficulties involved in valuation, safekeeping, etc., the banks do not invest in gold to maintain liquid assets for SLR purposes. 4. Any other instrument as may be notified by the Reserve Bank of India (as and when prescribed). 4. [Nov 16, 1991](RBI_Annual%20Report_1992.pdf#page=99&selection=107,0,114,33) - The Committee on the Financial System, also known as the [Narasimham Committee I-1991](RBI_Report_199111_Committee%20on%20the%20Financial%20System_Narasimham%20Committee%20I.pdf) recommended that the SLR should be brought down to 25% over a five-year period 5. April 15, 1997 - With effect from the fortnight beginning from April 26, 1997, RBI exempted Scheduled Commercial Banks (excluding Regional Rural Banks - RRBs) from maintaining the prescribed CRR (which was 10% at that time) and SLR on their net liabilities to the banking system. 6. April 25, 1997 - RBI clarified the effective SLR to be maintained by scheduled commercial banks on total demand and time liabilities was not to be less than the statutory minimum SLR requirement of 25.00% 7. October 22, 1997 - **SLR was reduced to the floor rate of 25%** 1. The multiple prescriptions of SLR were merged into a single prescription effective fortnight beginning October 25. 1997. So all scheduled commercial banks were required to maintain a uniform SLR of 25% of their entire net demand and time liabilities. which is the minimum stipulated under Section 24 of Banking Regulation Act. 1949. 2. Thus from peak of 38.5% in September 1990, SLR was reduced to the minimum of 25% by October 1997. 3. February 13, 2008 - In partial modification of notification dated Oct 21, 1997, consequent upon amendment to Section 24 of the Banking Regulation Act, 1949, replacing the Regulation (Amendment) Ordinance, 2007, effective January 23, 2007, which empowered RBI to prescribe SLR between 0% and 40%, all scheduled commercial banks were informed to maintain a uniform statutory liquidity ratio (SLR) of 25 per cent on their total net demand and time liabilities in the assets 4. September 18, 2009 - [Master Circular on CRR & SLR](RBI_Master%20Circular_20090918_Master%20Circular%20-%20Cash%20Reserve%20Ratio%20(CRR)%20and%20Statutory%20Liquidity%20Ratio%20(SLR).pdf#page=12&selection=17,74,22,73) 5. July 1, 2010 - [Master Circular on CRR & SLR](RBI_Master%20Circular_20100701_Master%20Circular%20-%20Cash%20Reserve%20Ratio%20(CRR)%20and%20Statutory%20Liquidity%20Ratio%20(SLR).pdf#page=11&selection=59,0,60,1) 6. ==Net inter-bank liabilities - Between 2009 and July 2010, the exemption on net inter-bank liabilities for the purpose of computation of NDTL for SLR was withdrawn. 8. [May 1998](RBI_Group-Committee_199805_Report%20of%20the%20Working%20Group%20for%20Harmonising%20the%20Role%20and%20Operations%20of%20Development%20Financial%20Institutions%20and%20Banks_1998_Chairperson_S.H.Khan.pdf) - Working Group for Harmonising the Role and Operations of Development Financial Institutions and Banks-1998 (also called the Khan Committee) submitted its paper. Phasing out SLR was one of the suggestion of the Group. 9. January 2007 - Acting upon the RBI's proposal to the Government for legislative amendments to remove the minima for CRR and SLR, effective January 23, 2007, the Banking Regulation Banking Regulation (Amendment) Act, 2007 replaced the Banking Regulation (Amendment) Ordinance, 2007. 1. Section 24 of the Banking Regulation Act, 1949 was amended. It removed the statutory prescription of minimum SLR limit of 25%. In other words, the floor rate of 25% of the statutory liquidity ratio (SLR) was removed. 2. With effect from April 1, 2007 (though the amendment to RBI Act was enacted in June 2006), the minima for CRR was also removed. 3. ==With this, there is no minimum statutory stipulation for SLR, and no maximum or minimum rates for CRR in India. The upper limit on SLR requirement is still 40%.== 4. This also proved the RBI’s commitment to the removal of the statutory prescriptions of minimum reserve and liquidity requirements. 5. It provided the discretion to prescribe the SLR without the lower bound, taking into the evolving macroeconomic and monetary conditions, thus giving RBI greater flexibility in the conduct of monetary policy operations. 6. RBI was empowered to change the prescribed SLR through a circular, without notification in the official gazette of the government. 7. The differential requirement of SLR for regional rural banks from that of other commercial banks was also removed. 10. [February 13, 2008](RBI_Notification_20080213_Maintenance%20of%20SLR.pdf) - In partial modification of notification dated Oct 21, 1997, consequent upon amendment to Section 24 of the Banking Regulation Act, 1949, RBI notified that all scheduled commercial banks shall continue to maintain a uniform statutory liquidity ratio (SLR) of 25 per cent on their total net demand and time liabilities in the assets. 11. [September 01, 2009](RBI_Notification_20090901_Cash%20Management%20Bills%20eligible%20as%20SLR%20Securities.pdf) - RBI informed that cash management bills ([CMBs](G-Secs-Primary%20Market.md#^f52884)) launched on [Aug 10, 2009](RBI_Press%20Release_20090810_Issuance%20of%20Government%20of%20India%20Cash%20Management%20Bills.pdf) will be treated as Government of India Treasury Bills and accordingly shall be treated as SLR securities. 12. July 20, 2021 - Master Direction - [Reserve Bank of India-Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) Directions - 2021](RBI_Master%20Directions_20210720_Master%20Direction%20-%20Reserve%20Bank%20of%20India_Cash%20Reserve%20Ratio%20(CRR)%20and%20Statutory%20Liquidity%20Ratio%20(SLR)_Directions%20-%202021%20(Updated%20as%20on%20December%2016,%202024)_WITHDRAWN.pdf) (July 20, 2021) was issued *(withdrawn).* 1. It was changed on December 16, 2024, September 25, 2023, April 06, 2022 13. Nov 28, 2025 - [Reserve Bank of India (Commercial Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Directions, 2025](https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=13160) was published 1. Master Direction - [Reserve Bank of India-Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) Directions - 2021](RBI_Master%20Directions_20210720_Master%20Direction%20-%20Reserve%20Bank%20of%20India_Cash%20Reserve%20Ratio%20(CRR)%20and%20Statutory%20Liquidity%20Ratio%20(SLR)_Directions%20-%202021%20(Updated%20as%20on%20December%2016,%202024)_WITHDRAWN.pdf) (July 20, 2021) *was withdrawn 14. April 15, 2025 - [Banking Laws (Amendment) Act, 2025](GoI_Gazettee-Notification_20250415_THE%20BANKING%20LAWS%20(AMENDMENT)%20ACT,%202025.pdf) was enacted. 1. It amended 5 acts - Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, the State Bank of India Act, 1955, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (nationalized 14 major Indian banks) and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (nationalized 6 additional banks) 2. These provisions came into force on Aug 1, 2025 and Nov 1, 2025 and Dec 15, 2025 3. Dec 4, 2025 - [An Explainer note by Press Information Bureau](PIB_20251204_Banking%20Laws%20(Amendment)%20Act,%202025.pdf) on Banking Laws (Amendment) Act, 2025 4. Dec 08, 2025 - Govt notified via Gazette of India Dec 15, 2025 as the effective date for various provisions of the Banking Laws (Amendment) Act, 2025 1. To refresh, The Banking Laws (Amendment) Act, 2025 had amended various provisions, including the section 42 of Reserve Bank of India Act, 1934 and the sections 18 and 24 of Banking Regulation Act 1949, relating to maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). 2. It revised Banking Regulation (Companies) Rules (published on Dec 10, 2025), Reserve Bank of India Scheduled Banks’ Regulations, 1951 (published on Jan 15, 2026) 5. December 10, 2025 - Pursuant to the enactment of the Banking Laws (Amendment) Act, 2025, the Banking Regulation (Companies) Amendment Rules, 2025 were published in the Gazette dated December 10, 2025 6. ==[December 11, 2025](RBI_Notification_20251211_Reserve%20Bank%20of%20India%20(Commercial%20Banks%20–%20Cash%20Reserve%20Ratio%20and%20Statutory%20Liquidity%20Ratio)%20Amendment%20Directions,%202025.pdf) - RBI published Reserve Bank of India (Commercial Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Amendment Directions, 2025.== 1. the definition of ‘Fortnight’ shall be redefined as ‘Fortnight’ means the period from the first day to the fifteenth day of each calendar month or sixteenth day to the last day of each calendar month, both days inclusive. 2. 'reporting Friday' now means ‘last day of each fortnight’ and the words ‘that Friday' mean the ‘last day of such fortnight’. 15. January 15, 2026 - Pursuant to the enactment of the Banking Laws (Amendment) Act, 2025, the Reserve Bank of India Scheduled Banks' (Amendment) Regulations 2025 (THE RESERVE BANK OF INDIA SCHEDULED BANKS' REGULATIONS, 1951) was published in the Gazette of India dated January 15, 2026. 16. Jan 22, 2026 - [Reserve Bank of India (Commercial Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Amendment Directions, 2026](RBI_Notification_20260122_Reserve%20Bank%20of%20India%20(Commercial%20Banks%20–%20Cash%20Reserve%20Ratio%20and%20Statutory%20Liquidity%20Ratio)%20Amendment%20Directions,%202026.pdf) was published. ## SLR ==There is minor difference in the definition of eligible SLR assets for Scheduled commercial banks (including RRBs) and local area banks, Primary (Urban) co-operative banks, State co-operative bank (StCB) and Central co-operative bank (CCB).== [^1] 1. Most of the SLR assets are held in form of the above securities, and the entire can be held as HTM. 2. All the [[Types of Banks|banks - commercial and co-operative banks (Primary (Urban) and Rural)]] have to maintain SLR as it provides an inherent strength to the Indian banks. 1. SLR is applicable, since April 2002, for all the Regional Rural Banks (RRBs) 3. SLR is governed by provisions of section 24: 1. Section 24 (2A) of the Banking Regulation Act, 1949 for commercial banks, 2. whereas for co-operative banks it is 24 (1) and 24 (2A) read with Sections 51 and 56 of the Banking Regulation Act, 1949 (AACS). 4. ==Through a gradual hike, the SLR has helped govt. secure an increasing captive investor base for its borrowings and finance its increasing fiscal deficit, particularly after the nationalisation of banks in 1969.== 5. In other words, SLR helps government borrow but at the cost of other borrowers. This impacts the overall interest rates in the country. But banks, however, continue to hold more government securities than the statutory minimum SLR, reflecting risk perception, portfolio choice and credit demand by private sector. 6. SLR is a tool of credit and monetary control but used rarely other than between February 2, 2015 and April 11, 2020 when it was changed [13 times](https://www.rbi.org.in/scripts/PublicationsView.aspx?id=22517). Between October 25, 1997 and August 11, 2012, it was changed only [5 times](https://www.rbi.org.in/scripts/PublicationsView.aspx?id=14402). 7. Lowering SLR can push govt. bond yields higher especially if the borrowing is high, but leads to freer pricing in bond markets, more credit for private sector, and pressure on govt. for controlled borrowing. 8. SLR is the [capacity](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1302#:~:text=So%20the%20SLR%20is%20the%20capacity%2C%20and%20OMOs%20are%20market%20processes) of the bank to quickly generate cash. Obviously, in event of a stress or *liquidity shortage to manage its liabilities* banks can always decide in terms of what is going to liquidate in order to generate that liquidity. So the SLR is the capacity, and OMOs are market process called auctions. 9. ==In early 1990s, SLR and CRR peaked. Why?== 1. CRR reached its prescribed ceiling of 15% of NDTL of banks in July 1989 and the SLR reached the peak of 38.5% in September 1990. 2. While SLR was hiked to preempt greater resources for the government for financing higher borrowing requirements, high government spending posed inflation challenges which were managed through CRR increases. 3. High CRR and SLR both reduce the space for meeting the credit requirements of the private sector. 10. **SLR and LAF** Excess SLR helps banks to borrow funds under LAF. 1. In times of strong credit demand, excess SLR holdings reduce. While the borrowed amount is not part of the liabilities in the computation of DTL/NDTL, the securities pledged must be in excess of the mandatory SLR requirement. 2. those acquired from RBI through reverse repo under [LAF](Liquidity%20Adjustment%20Facility%20(LAF).md#Current) are considered as eligible assets for SLR maintenance from [October 3, 2016](RBI_Notification_20161013_%20Section%2024%20and%20Section%2056%20of%20the%20Banking%20Regulation%20Act,%201949%20-%20Maintenance%20of%20Statutory%20Liquidity%20Ratio%20(SLR).pdf). 1. From [July 27, 2010](RBI_Notification_20100727_Maintenance%20of%20SLR.pdf) to October 3, 2016, those acquired from RBI through reverse repo under LAF WERE NOT eligible as SLR asset. 11. They also help to achieve the liquidity coverage ratio [[Liquidity Coverage Ratio (LCR)|(LCR)]]. 12. Recall that SLR is mainly about liquidity and government funding, while risk capital requirement is for loss-absorption and solvency. 1. Example: Assuming that the maximum proportion of risk assets is around 82% of NDTL (since a minimum of 18% is held in SLR-compliant securities), and assigning the highest risk weight of 150% to these assets, the risk-weighted assets (RWA) can be estimated at 1.23 times NDTL (i.e., 82% × 150% = 123%). 2. If we assume a maximum total capital requirement — including minimum capital plus buffers (like Capital Conservation Buffer, countercyclical buffer, and systemic risk buffer) — at 15% of RWA, the capital needed would be approximately 18.45% of NDTL (i.e., 1.23 × 15%). 3. However, since risk weights vary significantly across asset classes, the actual capital requirement (i.e., Tier 1 and Tier 2 capital) would typically be lower than 18.45% of NDTL. 4. This example assumes: - Only a minimum 18% of NDTL is held in risk-free SLR assets, - The highest possible risk weight (150%) is applied to the remaining 82%, and the - maximum capital requirement of 15% is applied to explain a *theoretical upper bound on risk capital as a % of NDTL, i.e., 18.45%.* 13. Penalties for [default](https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=12131#FA1:~:text=Penalties%20for%20default%20in%20SLR%20Maintenance) in SLR maintenance as been specified under Section 24 read with Section 56 of the BR Act, 1949, and it based on the bank rate. 14. Computation of SLR can be found [here](https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=12131#FA1:~:text=Procedure%20for%20Computation%20of%20NDTL%20for%20SLR) >Even if CRR becomes a constraint (that is if lowering of CRR is not a viable tool to inject liquidity), the mandatory SLR is 23%, the actual holding of SLR security is about 29-30%. So, theoretically that gives you a very large cushion. If the system needs significant infusion of liquidity, then that can be used. I am not saying that that scenario is on us but let us not forget that the whole point of SLR is essentially that, it is the liquidity ratio and it is something that represents the capacity of system to generate liquidity when the need arises. >-Dr Subir Gokarn in post-policy [conference](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1302#:~:text=look%20at%2C%20even-,if,-CRR%20becomes%20a), Second Quarter Review of Monetary Policy for 2012-13   ## LCR and SLR 1. [Liquidity Coverage Ratio (LCR)](Liquidity%20Coverage%20Ratio%20(LCR).md) ## SLR Changes 1. A note on [SLR changes](RBI_History_Chronology%20of%20Bankrate,%20CRR%20and%20SLR%20Changes_1949-1997.pdf) from 1949 to 1997 - [link](https://www.rbi.org.in/commonman/english/History/Scripts/BankrateCRRandSLRChanges.aspx) <div style="height:375px"> <iframe src="https://docs.google.com/spreadsheets/d/e/2PACX-1vQNMjSnJ_RccPkna6bueUuI7P6nIaKw_82oYtovkXO-8rVyGRftyGUqG7S8YjTvUfj-HYxlGnkHGYW-/pubhtml?gid=0&amp;single=true&amp;widget=true&amp;headers=false" width="100%" height="100%" frameborder="0"></iframe> </div> ## Master Directions 1. [Link to CRR](Cash%20Reserve%20Ratio%20(CRR).md#Master%20Directions) ## Resources 1. RBI. (Nov, 1991). Committee on the Financial System-Narasimham Committee I. [pdf](RBI_Report_199111_Committee%20on%20the%20Financial%20System_Narasimham%20Committee%20I.pdf) 2. RBI. (Nov 1, 2012). Edited Transcript of Governor's Post-Policy Conference Call with Researchers and Analysts - [Nov 01, 2012](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1302) 3. RBI. (2021) [Master Direction](2021](https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=12131#FA1) - Reserve Bank of India \[Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)\]-2021 4. RBI. [Handbook of Statistics on Indian Economy](## Handbook of Statistics on Indian Economy) \[Table 43 : Major Monetary Policy Rates and Reserve Requirements - Bank Rate, LAF (Repo, Reverse Repo, SDF and MSF) Rates, CRR & SLR\] [^1]: Reserve Bank of India [(Commercial Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Directions, 2025](https://www.rbi.org.in/scripts/BS_ViewMasDirections.aspx?id=13160)