SLR stands for Statutory Liquidity Ratio. It is a monetary policy tool used by central banks, such as the Nepal Rastra Bank (NRB), to regulate the liquidity of commercial banks. The SLR requires commercial banks to maintain a certain percentage of their net demand and time liabilities (NDTL) in the form of liquid assets, such as cash, gold, or government securities.
In Nepal, the SLR is determined and regulated by the Nepal Rastra Bank. The Statutory Liquidity Ratio (SLR), which is the minimum liquid assets that BFIs much hold as government security, has been fixed to 12% for commercial banks and 10% for development banks and financial institution for F/Y 2023/024.
The SLR serves several purposes, including:
Ensuring liquidity: The SLR ensures that banks have a certain level of liquid assets available to meet their customers’ demands for cash withdrawals.
Encouraging investment in government securities: Banks can meet their SLR requirements by investing in government securities, which helps to finance government borrowing and infrastructure projects.
Controlling inflation: By regulating the amount of liquid assets held by banks, the central bank can control the money supply and inflation.
Maintaining financial stability: The SLR helps to ensure that banks maintain a certain level of financial stability by requiring them to hold a minimum amount of liquid assets.
Commercial banks must report their SLR to the RBI on a fortnightly basis, and failure to meet the SLR requirements can result in penalties and fines.