Decrease in Statutory Liquidity Ratio(SLR) will lead to?
The Statutory Liquidity Ratio (SLR) is the percentage of deposits that banks are required to maintain in the form of liquid assets such as cash, gold or government securities. If there is a decrease in the SLR, it means that banks will have to maintain a lower percentage of their deposits as liquid assets. This can have the following effects:
Increase in lending: With a lower SLR, banks have more funds available for lending. This can lead to an increase in credit availability and a boost in economic growth.
Decrease in government borrowing: Banks are required to invest a certain percentage of their deposits in government securities as part of the SLR. A lower SLR means that banks will have to invest less in government securities, leading to a decrease in government borrowing.
Increase in bond prices: A decrease in SLR can lead to a decrease in demand for government securities, which can lead to a decrease in their prices. However, if the decrease in SLR leads to an increase in lending, it can lead to an increase in demand for corporate bonds and other securities, which can lead to an increase in their prices.
Overall, a decrease in SLR can have positive effects on the economy, including increased credit availability and reduced government borrowing. However, it can also lead to increased risk-taking by banks, which can have negative consequences in the long term.
The Statutory Liquidity Ratio is a rule that banks have to follow. It says that banks have to keep a certain percentage of the money they get from deposits as cash or other safe and easy-to-sell assets, like government bonds. This is to make sure that the banks have enough money on hand to give to their customers if they need it.
If the SLR is lowered, it means that banks can keep less money as cash or in safe assets and can lend out more money to people or businesses who need it. This could be good for the economy because more people could get loans to start a business or buy a house, which could create more jobs and make the economy grow.
However, lowering the SLR could also have some risks. For example, banks may be more likely to take risks with their lending, which could lead to problems later on. And if banks don't have enough money on hand, they might not be able to give customers their money back if they need it. So it's important to strike a balance between lending and keeping enough money on hand to make sure the banking system is stable.
Learn More : Increase in Statutory Liquidity Ratio(SLR) will lead to? | Understanding Statutory Liquidity Ratio(SLR): Its significance & Impact on Economy | Difference between Cash Reserve Ratio(CRR) & Statutory Liquidity Ratio(SLR)