Maintenance of SLR (Statutory Liquidity Ratio)

March 10, 2020
SEBI Grade A Test Series

In accordance with Section 24 of the Banking Regulation Act, 1949 the Reserve Bank can prescribe the Maintenance of SLR (Statutory Liquidity Ratio) for Scheduled Commercial Banks in specified assets. The value of such assets shall not be less than such percentage not exceeding 40 per cent of its total Demand and Time Liabilities in India as on the last Friday of the second preceding fortnight

Maintenance of SLR

Marginal Standing Facility (MSF) Scheme

Under this facility, the eligible entities may borrow up to two per cent of their respective Net Demand and Time Liabilities outstanding at the end of the second preceding fortnight. Additionally, the eligible entities may also continue to access overnight funds under this facility against their excess SLR holdings

Liquidity Coverage Ratio

Within the mandatory SLR requirement, Government securities to the extent allowed by the RBI under Marginal Standing Facility (MSF) are permitted to be reckoned as the Level 1 High Quality Liquid Assets (HQLAs) for the purpose of computing Liquidity Coverage Ratio (LCR) of banks. In addition to this, banks are permitted to reckon up to another 5 per cent of their NDTL within the mandatory SLR requirement as level 1 HQLA. This is the Facility to Avail Liquidity for Liquidity Coverage Ratio

Securities/Assets Eligible for Maintenance of SLR

Every SCB shall continue to maintain in India assets as detailed below:

  1. Cash
  2. Gold valued at a price not exceeding the current market price
  3. Investment in the following Statutory Liquidity Ratio (SLR) securities:
    1. Dated securities issued up to May 06, 2011
    2. Treasury Bills of the Government of India;
    3. Dated securities of the Government of India issued from time to time under the market borrowing programme and the Market Stabilization Scheme;
    4. State Development Loans (SDLs) of the State Governments issued from time to time under the market borrowing programme; and
    5. Any other instrument as may be notified by the Reserve Bank of India

The securities (including margin) referred to above, if acquired under the Reserve Bank- Liquidity Adjustment Facility (LAF), shall not be treated as an eligible asset for this purpose

Penalties for Non Maintenance of SLR

If a banking company fails to maintain the required amount of SLR, it shall be liable to pay to RBI in respect of that default, the penal interest for that day at the rate of three per cent per annum above the Bank Rate on the shortfall and if the default continues on the next succeeding working day, the penal interest may be increased to a rate of five per cent per annum above the Bank Rate for the concerned days of default on the shortfall.

References

Master Circular – Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR): https://www.rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=9905

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