The Full form of SLR is Statutory Liquidity Ratio. The SLR is a Government term in India for the requirement of reserve that commercial banks are required to maintain in the form of cash, gold reserves, or Reserve Bank of India (RBI) approved securities before providing credit to the customers. Basically, it is the reserve requirement that the banks are expected to keep before offering credit to the customers.
The Statutory Liquidity Ratio to be maintained by commercial banks is determined by the Reserve Bank of India (RBI) in order to control the expansion. The SLR is determined as a percentage of time liabilities and total demand. Time liabilities are the liabilities which are liable to repay to the customers by the commercial banks after an agreed period, and demand liabilities refer to customer deposits which are repayable on demand.
An example of a time liability is an 11-month FD (fixed deposit) which is payable only after 11 months and not on demand. An example of a demand liability is a deposit maintained by a customer in the form of a saving account or current account that is payable on demand. The SLR is generally used to control inflation by increasing or decreasing the supply of money.