Under Statutory Liquidity Ratio, commercial banks are required to keep a fraction of _____ in the form of liquid assets.
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) →Total demand and term deposits
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Statutory Liquidity Ratio (SLR) is the percentage of a bank's total demand and time (term) deposits that it must maintain in the form of liquid assets like cash, gold, or government securities.
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Demand deposits = money in savings or current accounts (which can be withdrawn anytime).
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Term deposits = money in fixed deposits (which is locked for a certain period).
Thus, SLR is maintained on the total of demand and term deposits.
Option 1: Total deposits — This option sounds close but it is not specific enough. "Total deposits" could be taken to mean all types of deposits — including some special types like interbank deposits (deposits made by one bank in another bank) or other liabilities that are not considered while calculating SLR.