Statutory Liquidity Ratio: Meaning, Formula, Example And Importance

Key takeaways 
 

• Indian banks have to keep some amount of their total deposits with them; this portion is called the statutory liquidity ratio.
   
• The statutory liquidity ratio in India is determined by the Reserve Bank of India.
   
• It was introduced by the Banking Regulation Act, 1949, and the SLR ratio then was 20%. It has been changed many times, and currently in 2026 it is 18%.

bonus tip - In January–March 2026, the Reserve Bank of India issued “Cash Reserve Ratio and Statutory Liquidity Ratio Amendment Directions, 2026” for commercial banks, regional rural banks (RRBs), and local area banks (LABs).

Do you know about statutory liquidity ratio? It doesn't matter if you know about it or not. I'm giving you an example. Which will make you understand this concept clearly. 

When I joined my first job, my salary was 15000. I used to give 20% of it to my mother and keep 20% with myself. The 20% that I keep with myself in banking terms is called the statutory liquidity ratio (SLR). This is one of the financial terms in the economy.

What is the statutory liquidity ratio (SLR)?

The statutory liquidity ratio in Hindi is called “vaidhanik taralta anupat”. When commercial banks add some percentage of their NDTL (Net Demand and Time Liabilities) in liquid assets like cash, gold, government securities, and corporate bonds, it is known as the statutory liquidity ratio. 

SLR is a type of tool by which banks earn profit. Earlier, the maximum limit of SLR was 40%, and the minimum was 0%. In India, the RBI has the authority to determine SLR in its quarterly review. Currently, SLR in India is 18%. 

Statutory liquidity ratio calculation (SLR)

Statutory liquidity ratio is calculated by the below formula. 

SLR = % of NDTL

statutory liquidity ratio example

Suppose NDTL(Net Demand and Time Liabilities) of the bank of baroda is 1000 crore. So the Statutory liquidity ratio is 18% of NDTL.

SLR = % of NDTL

        = 18% (1000 cr)

        = 180 cr

That means banks have to keep this 180 cr in the form of gold, cash, or government securities with them. 

Banks have to keep some amount of their deposits in liquid assets like gold or cash. This amount of percentage is mentioned by the Reserve Bank of India. 

Use of the statutory liquidity ratio in Expansionary and contractionary policy

Both the Use of the statutory liquidity ratio in Expansionary and contractionary policy is according to the Reserve Bank of India.

Expansionary policy 
 

• Expansionary policy is an increase in the money supply, the flow of money in the market, and the M3 money supply. 
   
• In an expansionary policy, SLR is always kept at a minimum because when banks keep a minimum SLR. They give more loans to customers, and it increases liquidity in the market. 
   
• If the government's plan is to support growth and increase GDP, keeping SLR minimum is required. 

Contractionary policy 
 

• In a contractionary policy, the M3 money supply is at a minimum. 
   
• Contractionary policy is followed when there is inflation, and it is used to lessen the money supply in the market. For example, when there is no money in a person's hand, he will try to buy 100s of fruits in 50s. 
   
• But if they have excess money, he can buy that fruit even for 200. 
   
• That means if people have excess money, the government has to take that money; this is known as contractionary monetary policy. 

In this policy, the government has to increase SLR. 

Expansionary and contractionary policies can be fixed by SLR. If growth is needed in the market, then SLR should be less, and if inflation needs to be controlled, then SLR should be more. 

Difference between SLR and CRR

Your loan's interest rate is defined by many things, and two important points from them are SLR(statutory liquidity ratio) and CRR(cash reserve ratio).

Statutory liquidity ratio and Cash reserve ratio are collectively called the fractional ratios.

Conclusion 

In India, the statutory liquidity ratio is determined by the Reserve Bank of India. It is some portion of the total deposits of banks that it has to keep as a reserve. SLR is changed time-to-time because it is effective for maintaining inflation. SLR reduces the purchasing power of people. 

FAQS 

What is the actual difference between CRR and SLR?

Both CRR and SLR are important from an economic point of view. Indian commercial banks have to keep some money with them and send some to the Reserve Bank of India from their total deposits. The money bank keeps with them is the statutory liquidity ratio, and that sent to the RBI is the cash reserve ratio.

Why does the RBI increase SLR during inflation?

The Reserve Bank of India uses contractionary monetary policy to control inflation. When people have more money with them, they spend a lot to control if the RBI increases the SLR so that banks have to keep more money with them and lend less. 

Does SLR affect my Home Loan or FD rates?

Yes, the SLR affects your home loan or FD. When SLR is increased, banks have to keep more amounts with them and lend a small portion of the total deposits. Hence, home loans become expensive, and interest can also increase leading your EMI high. 

Why is the SLR so restrictive, and should it be changed?

SLR is restrictive because banks must keep a fixed part of their money in safe assets, so they have less money to give as loans.