Stay Informed: Current SLR Rate and its Relevance

What is the Statutory Liquidity Ratio or SLR? All home loan borrowers must familiarize themselves with the concept of SLR and SLR Rate as any changes in both directly impact one's home loan repayment capacity and plans. 

The Statutory Liquidity Ratio or SLR refers to the minimum percentage of deposits that any commercial bank must maintain or set aside in the form of cash, gold and other securities that the Government of India acknowledges. 

Home loan borrowers and credit users in India often confuse SLR with CRR or the Cash Reserve Ratio. As opposed to the SLR, CRR refers to the percentage of deposits that a bank must maintain in the form of cash. Banks must maintain the SLR with themselves whereas they must maintain the CRR with the Reserve Bank of India. 

The current SLR rate is 18%. However, the Reserve Bank of India has the authority to increase the SLR to as high as 40% in India.  

What are the Different Components of Statutory Liquidity Ratio?

Statutory Liquidity Ratio has the following components: 

1. Liquid Assets: Liquid assets refer to assets and securities that a bank can immediately convert into cash at any time. Gold, treasury bills, government bonds and cash fall under the category of liquid assets. 

2. NDTL or Net Demand and Time Liabilities refers to all the liabilities or deposits that a bank must pay on demand. Under this category come current deposits, demand drafts, etc.  

The Reserve Bank of India Changes SLR in Response to Changing Economic Conditions

The Reserve Bank of India uses six monetary policy tools to ensure the stability of prices and smooth growth of the Indian economy and one of these tools is the Statutory Liquidity Ratio. 

The RBI increases the SLR in response to increasing inflation. An increased SLR reduces the bank's power to lend money at low interest rates. Therefore, an increase in the SLR causes loans to become expensive. The interest rate on home loans increases too after an SLR hike. On the contrary, a reduction in the SLR causes all loans, including home loans, to become cheaper. The Reserve Bank of India reduces the SLR when it wants to inject money into the economy to boost growth. 

What is the Current SLR Rate and what is the Highest that the SLR Rate Can Go? 

The current SLR Rate is 18% and the highest that the SLR can go is 40%. 

What Happens When Banks and Lenders Do Not Honour Their SLR Requirements? 

As per Section 24 and Section 56 of the Income Tax Act, commercial, urban co-operative, state and central co-operative and local area banks must maintain the SLR. In fact, the RBI makes it mandatory for all the aforementioned financial institutions to report their Net Demand and Time Liabilities every Friday. 

If a bank fails to maintain the required SLR, the Reserve Bank of India slaps a penalty of 3% over the Bank Rate. If the bank fails to maintain the required SLR thereafter, the Reserve Bank of India increases the fine or penalty to a 5% fine over the Bank Rate. 

Statutory Liquidity Ratio is an important tool that the RBI uses to ensure stable economic growth as well as the integrity and uninterrupted working of the Indian banking system. SLR helps banks stay solvent at all times and avoid a crisis. 

If you are planning to apply for a home loan, understanding SLR is vital as changes in the SLR will have a direct impact on your ability to repay your loan. 

Further, to establish eligibility for the lowest interest rates on home loans, borrowers must calculate home loan eligibility beforehand using a home loan eligibility calculator. This online tool is free to use and lets borrowers calculate the loan amount they are eligible for based on factors, such as age, city of residence, income, debt-to-income ratio, etc. 

Applying for a loan amount that one qualifies for not only increases one's chances of being able to avail of the home loan quickly but also greatly improves one's ability to demand better loan terms and conditions on one's loan.

The use of other online tools, such as the home loan calculator, is also highly recommended as these tools aid greatly with repayment planning and play a key role in making one's home loan repayment journey entirely stress-free.