Answer Posted / shinoj.k.s.
The objectives of SLR are:
1.To restrict the expansion of bank credit.
2.To augment the investment of the banks in Government
securities.
3.To ensure solvency of banks. A reduction of SLR rates
looks eminent to support the credit growth in India.
The SLR is commonly used to contain inflation and fuel
growth, by increasing or decreasing it respectively. This
counter acts by decreasing or increasing the money supply
in the system respectively. Indian banks’ holdings of
government securities (Government securities) are now close
to the statutory minimum that banks are required to hold to
comply with existing regulation. When measured in rupees,
such holdings decreased for the first time in a little less
than 40 years (since the nationalisation of banks in 1969)
in 2005-06.While the recent credit boom is a key driver of
the decline in banks’ portfolios of G-Sec, other factors
have played an important role recently.
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