In Indian banking and monetary policy, what is the Statutory Liquidity Ratio (SLR) rate and how is it defined for banks?

Introduction / Context:
In India and many other countries, the central bank uses various ratios to regulate the liquidity position of commercial banks. One such important ratio is the Statutory Liquidity Ratio, commonly called the SLR. Banking interview questions often test whether candidates can clearly define SLR and distinguish it from other key concepts like the repo rate and interbank rates. This question asks for the correct description of the SLR rate.

Given Data / Assumptions:

• The context is Indian banking and monetary policy.
• Banks have net demand and time liabilities, often abbreviated as NDTL.
• Banks are required to maintain certain liquid assets against these liabilities.
• The central bank prescribes the SLR as a percentage of NDTL.

Concept / Approach:
Statutory Liquidity Ratio is the proportion of NDTL that a bank must hold in the form of specified liquid assets. These assets typically include cash, gold and unencumbered approved securities, mainly government securities. The purpose is to ensure that banks maintain a minimum level of safe, marketable assets that can be used to meet obligations. To answer the question, we look for the option that refers to a percentage of NDTL held as liquid assets, not an interest rate or customer limit.

Step-by-Step Solution:
Step 1: Note that the key phrase is Statutory Liquidity Ratio, which is a regulatory liquidity requirement. Step 2: Recall that SLR is expressed as a percentage of net demand and time liabilities, not as an interest rate. Step 3: Read option A, which states exactly that banks must maintain a percentage of NDTL in liquid assets such as cash, gold and government securities. Step 4: Examine option B, which instead describes the repo rate, the lending rate of the central bank to commercial banks. Step 5: Examine option C, which describes the interbank call money rate, and option D, which refers to an ATM withdrawal limit, neither of which is SLR.

Verification / Alternative check:
To verify, you can compare SLR with Cash Reserve Ratio (CRR). CRR requires banks to keep a portion of NDTL as cash reserves with the central bank, while SLR requires a portion of NDTL to be kept in liquid assets like cash, gold and government securities, often held with the bank itself. Both are expressed as percentages of NDTL. Since only option A refers to such a percentage of NDTL in liquid assets, it must be the correct definition of SLR.

Why Other Options Are Wrong:
Option B is wrong because the interest rate at which the central bank lends to commercial banks is the repo rate, not SLR. Option C is wrong because the overnight rate in the interbank market is the call money rate or similar, again not SLR. Option D is wrong because ATM withdrawal limits are set by banks for customer convenience and risk control and have nothing to do with statutory liquidity requirements. None of these alternatives describe a ratio applied to NDTL that must be held as liquid assets.

Common Pitfalls:
Candidates often mix up SLR with CRR and repo rate because all are tools of monetary policy. Another common pitfall is to think of SLR as an interest rate simply because the word rate appears in the term, even though it is a ratio or percentage. Remembering that SLR is about liquidity and assets, while repo rate is about the cost of borrowing from the central bank, can help avoid confusion. Always link SLR with NDTL and approved liquid assets in your mind.

Final Answer:
The SLR rate is the percentage of net demand and time liabilities that banks must maintain in the form of approved liquid assets such as cash, gold and government securities as prescribed by the central bank.