What was the lower ceiling of Statutory Liquidity Ratio (SLR) which was amended in 2007 by the Government of India?
- (a)24%
- (b)25%
- (c)27%
- (d)30%
Correct — B, 25%. Section 24 of the Banking Regulation Act, 1949 originally fixed the Statutory Liquidity Ratio (SLR) within a statutory band of 25%-40% of a bank's Net Demand and Time Liabilities (NDTL) — RBI could not legally set it below 25%. The Banking Regulation (Amendment) Act, 2007 removed this 25% floor, giving RBI full discretion to fix SLR anywhere up to 40% (including below 25%) as a monetary-policy tool.
- (a)24% — Not the statutory floor — the actual pre-2007 legal minimum for SLR fixed by the Banking Regulation Act was 25%, not 24%.
- (c)27% — Not a threshold the Banking Regulation Act ever specified for SLR's lower limit.
- (d)30% — Also not the statutory floor removed in 2007; the legal minimum being amended away was 25%.
SLR is the minimum percentage of a bank's Net Demand and Time Liabilities (NDTL) that it must hold in approved liquid assets — cash, gold, or government securities — before lending out the rest. It is fixed by the RBI under Section 24 of the Banking Regulation Act, 1949, and works alongside the Cash Reserve Ratio (CRR) as one of India's key reserve-based monetary tools.
Before 2007, the law itself boxed in the RBI: SLR could not legally fall below 25% or exceed 40%. Removing the lower bound in 2007 was a liberalising step — it let RBI cut SLR more freely to release funds for bank lending when it wanted an easier (expansionary) monetary stance.
- SLR is governed by Section 24 of the Banking Regulation Act, 1949.
- Before the 2007 amendment, the law fixed a floor of 25% (and a ceiling of 40%) on SLR.
- The Banking Regulation (Amendment) Act, 2007 removed the 25% floor, giving RBI discretion to set SLR below 25% if needed.
- Unlike CRR (parked with the RBI, non-interest-bearing), SLR assets — cash, gold, government securities — stay on the bank's own books and can earn interest.
The 2007 amendment removed the statutory 25% lower limit on SLR — the fact tested in this question.
- Confusing SLR's statutory 25% floor with CRR (a different reserve ratio administered under the RBI Act, 1934)
- Assuming the 2007 amendment changed the SLR rate itself, rather than removing a legal floor on how low it could be set
MPPSC/UPSC test the legal architecture of SLR/CRR (which Act, which Section, what the floor/ceiling was) alongside the operational effect of changing them — expect both angles.
If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do? 1. Cut and optimize the Statutory Liquidity Ratio 2. Increase the Marginal Standing Facility Rate 3. Cut the Bank Rate and Repo Rate Select the correct answer using the code given below:
- (a) 1 and 2 only
- (b) 2 only
- (c) 1 and 3 only
- (d) 1, 2 and 3
Answer(b) 2 only
Same instrument — the Statutory Liquidity Ratio — tested from the operational side (cutting SLR as an expansionary monetary-policy move) rather than the 2007 legal-floor history tested here.
- practice — not a real PYQ
The Statutory Liquidity Ratio (SLR) in India is prescribed under which Act?
- (a)RBI Act, 1934
- (b)Banking Regulation Act, 1949
- (c)FRBM Act, 2003
- (d)SARFAESI Act, 2002
Answer(b) Banking Regulation Act, 1949 — Section 24 empowers the RBI to fix the SLR.
- practice — not a real PYQ
Unlike the Cash Reserve Ratio (CRR), assets maintained to meet the Statutory Liquidity Ratio (SLR):
- (a)earn no interest and sit with the RBI
- (b)remain with the bank and can earn interest
- (c)must be held only in gold
- (d)are unrelated to a bank's NDTL
Answer(b) remain with the bank and can earn interest — SLR assets (cash/gold/government securities) stay on the bank's own books, unlike CRR, which is parked non-interest-bearing with the RBI.