Rahul_Jose In: 1. Financial Accounting > Ratios What is Statutory Liquidity Ratio? What is Statutory Liquidity Ratio? Share Facebook You must login to add an answer. Username or email* Password* Captcha* Remember Me! Forgot Password? Need An Account, Sign Up Here 1 Answer Voted Recent Pooja_Parikh Aspiring Chartered Accountant 2021-11-29T20:30:28+00:00Added an answer on November 29, 2021 at 8:30 pm Statutory Liquidity ratio is the minimum percentage of reserves of liquid assets that the commercial bank should maintain. These liquid assets are in the form of gold, cash, and other securities. These reserves are kept with the bank itself and not with the Reserve Bank of India. The bank holds various demand and time deposits of the public, the total of which is called Net Demand and Time Liabilities (NDTL). This includes demand deposits that have to be paid on demand. Various other deposits like time deposits, fixed deposits, demand drafts, etc. are also included. Every bank must keep a portion of its NDTL in the form of cash, gold, or other liquid assets. Therefore, the Statutory Liquidity Ratio is the ratio of these liquid assets to the total demand and time liabilities. The authority to determine the ratio lies with the RBI, who can increase it to the extent of 40%. FORMULA PURPOSE OF SLR RBI controls the flow of cash in the economy by means of monetary policy measures through financial instruments like Statutory Liquidity Ratio. At the time of inflation, RBI increases SLR to reduce the flow of cash whereas, at the time of deflation, they reduce SLR to increase the flow of cash. Maintaining SLR also helps ensure the solvency of the commercial banks. If the banks do not maintain the necessary level of SLR, they would be liable to pay a penalty to RBI at 3% per annum above the bank rate, on the shortfall amount of that day. 0 Share Share Share on Facebook Share on Twitter Share on LinkedIn Share on WhatsApp Related Questions What are some examples of deferred revenue expenses? Are brands intangible assets? What comes in debit side of Realisation account? What is recorded in the Realisation account? What is not included in Realisation account? What is recorded on the credit side of a Realisation account? Can accounts payable have a debit balance?