SLR Cut

It was a boom to banks and people regarding Repo rate cut by RBI to 25 points, which eventually lead to cut in banks base rate. Though it was an excitement to banks and people, only 45 commercial banks reduced made a rate cut till today.

But still, as the country’s economy is growing, RBI governor has put out another surprise by cutting the SLR rate, though other key interest rates are kept unchanged.. To start with this topic let us first know what exactly SLR mean?

Statutory Liquidity ratio is the minimum deposit that any bank should maintain with RBI in term of gold, cash or government securities. The securities pertaining to SLR are risk-free securities.

Base rate is decided by the following components

1) SLR and CRR

2) Cost of deposits and cost of borrowings

3) Overhead and still more.

So, SLR also has its contribution in the base rate calculation. SLR has been reduced by RBI to provide a higher leverage to banks. Banks can now utilize by providing better advances. RBI governor’s motive is to increase financial inclusion and to increase funds provided by government as advances.

As some banks are not in an idea to reduce their lending rate in spite of rate cut done by RBI, SLR cut is expected to have an effect in base rate. Other motive to cut SLR rate is to reduce the lazy banking performance of banking institutions. RBI governor has also meant that as financial improvements and economical improvements are seen such rate reductions can be expected.  Hope to see a better banking and financial sector ahead.

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