Statutory Liquidity Ratio (SLR) :
Statutory Liquidity Ratio (SLR): SLR is also the mandatory reserves to be maintained by banks held in the form of prescribed securities. This is also based on certain percentage of their demand and time liabilities of a bank.
As per Section 24 of the Banking Regulation Act, every banking company in India is required to maintain in India, in cash, gold or unencumbered approved securities, an amount which should not at close of business on any day be less than the percentage prescribed by RBI of the total of its demand and time liabilities in India. This is known as “Statutory Liquidity Ratio”.
Consequent upon amendment to the Section 24 of the Banking RegulationAct,1949 through the Banking Regulation (Amendment) Act, 2007 , the Reserve Bank can prescribe the SLR for SCBs in specified assets. The value of such assets of a SCB should not be less than such percentage not exceeding 40 per cent of its total DTL in India as on the last Friday of the second preceding fortnight as the Reserve Bank may, by notification in the Official Gazette, specify from time to time.
Reserve Bank has specified that every SCB should maintain in India assets as detailed below, the value of which should not, at the close of business on any day, be less than the percentage as specified by RBI of the total net demand and time liabilities as on the last Friday of the second preceding fortnight as prescribed valued in accordance with the method of valuation specified by the Reserve Bank of India from time to time:
(a) Cash or Gold valued at a price not exceeding the current market price, or
(b) Investment in the following instruments which will be referred to as “Statutory Liquidity Ratio (SLR) securities”:
(i) Dated securities issued (as directed by the Reserve Bank from time to time) (ii) Treasury Bills of the Government of India
(iii) Any other instrument as may be notified by the Reserve Bank of India, provided that the securities (including margin) referred to above, if acquired under the Reserve Bank- Liquidity Adjustment Facility (LAF), should not be treated as an eligible asset for this. Encumbered SLR securities should not be included for the purpose of computing the percentage specified above. In computing the amount for the above purpose, the following will be accounted for “cash maintained in India”:
(i) The deposit required under sub-section (2) of Section 11 of the Banking Regulation Act, 1949 to be made with the Reserve Bank by a banking company incorporated outside India;
(ii) Any balances maintained by a scheduled bank with the Reserve Bank in excess of the balance required to be maintained by it under Section 42 of the Reserve Bank of India Act, 1934 (2 of 1934);
(iii) Net balances in current accounts with other scheduled commercial banks in India. Procedure for Computation of SLR:
The procedure to compute total NDTL for the purpose of SLR under Section 24 (2) (B) of B.R. Act 1949 is broadly similar to the procedure followed for CRR. . SCBs are required to include inter-bank term deposits/term borrowing liabilities of all maturities in ‘Liabilities to the Banking System’. Similarly, banks should include their inter-bank assets of term deposits and term lending of all maturities in ‘Assets with the Banking System’ for computation of NDTL for SLR purpose.
Classification and Valuation of Approved Securities for SLR:
As regards classification and valuation of approved securities, banks may be guided by the instructions stipulated by RBI from time to time on Prudential Norms for classification, valuation and operation of investment portfolio by banks.
Penalties:
If a banking company fails to maintain the required amount of SLR, it should be liable to pay to RBI in respect of that default, as per the directives of the Reserve Bank of India from time to time.
Return in Form VIII (SLR):
(i) Banks should submit to the Reserve Bank before 20th day of every month, a return in Form VIII showing the amounts of SLR held on alternate Fridays during immediate preceding month with particulars of their DTL in India held on such Fridays or if any such Friday is a Public Holiday under the Negotiable Instruments Act, 1881, at the close of business on preceding working day.
(ii) Banks should also submit a statement as annexure to Form VIII return giving daily position of (a) assets held for the purpose of compliance with SLR, (b) the excess cash balances maintained by them with RBI in the prescribed format, and (c) the mode of valuation of securities.
Correctness of Computation of DTL to be certified by Statutory Auditors:
The Statutory Auditors should verify and certify that all items of outside liabilities, as per the bank’s books had been duly compiled by the bank and correctly reflected under DTL/NDTL in the fortnightly/monthly statutory returns submitted to Reserve Bank for the financial year.