Q: When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen?
a) India’s GDP growth rate increases drastically
b) Foreign Institutional Investors may bring more capital into our country
c) Scheduled Commercial Banks may cut their lending rates
d) It may drastically reduce the liquidity to the banking, system
The correct answer is Option 3.
Statutory liquidity ratio (SLR)
- It is the reserve requirement that commercial banks are required to maintain in the form of cash, gold reserves, PSU Bonds, and RBI-approved securities before providing credit to the customers.
- If SLR is reduced, commercial banks can use more money to lend to their customers. Hence, Option 3 is correct.
- When the lending rate is reduced by the bank to some extent, their profitability won’t be hampered in case of a reduction in the SLR rate.
- Reduction in the Statutory liquidity ratio (SLR) is done by RBI to increase liquidity in the market.
- This is a tool to manage the inflation rate.
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