Consider the following statements regarding Statutory Liquidity Ratio 1 Treasury bills dated securit...........

Indian Economic System(CSC) Money and banking

Consider the following statements regarding Statutory Liquidity Ratio:

1. Treasury bills, dated securities issued under market borrowing programme and Market Stabilisation Scheme (MSS) are part of the SLR.

2. The rate of SLR comes down during the time of inflation.

Which of the statement(s) given above is/ are correct?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

छोटे Courses बड़े Results

Master Money and banking

Prepare through Micro-courses

Try Now

Explanation:

Statement 1 is correct. The Statutory Liquidity Ratio (SLR) is a prudential measure under which (as per the Banking Regulations Act 1949) all Scheduled Commercial Banks in India must maintain an amount in one of the following forms as a percentage of their total Demand and Time Liabilities (DTL) / Net DTL (NDTL)
? Cash.
? Gold or
? Investments in unencumbered Instruments that include;
(a) Treasury-Bills of the Government of India.
(b) Dated securities including those issued by the Government of India from time to time under the market borrowings programme and the Market Stabilization Scheme (MSS).
(c) State Development Loans (SDLs) issued by State Governments under their market borrowings programme.
(d) Other instruments as notified by the RBI.
Statement 2 is incorrect. In the case of inflation Central Bank will increase SLR. As SLR is increased banks will have to keep more liquidity with themselves. So less amount of funds will be available to the banks for credit creation (granting loan). The total money supplied in the economy will decrease. People will have less money to spend and so their purchasing power will decrease. This will lead to less demand. The forces of demand and supply will react and the general price level in the economy will be decreased.