Dr. Raj Kishore Panda in Bhubaneswar, December 4, 2025: Statutory Liquidity Ratio (SLR) has remained a focal point of discussion among economists and policy analysts in recent years. Starting with the reports of the Narasimhan Committee, 1991 and 1998 which suggested for reducing SLR, recent article by S. Anklesaria Aiyar, the economic -columnist arguing for doing away with SLR raises fresh debate between stability and growth.

As it is commonly understood SLR is a monetary policy tool exercised by the RBI mandating the commercial and co-operativebanks to invest a percentage of their demand and time deposits in liquid assets including government securities. The purpose behind such investment is broadly two-fold viz: first, to maintain financial stability in the country by regulating credit deployment of the banks and at the same time ensuring the banks’ adequate liquidity. Secondly, to support the government finances including its debt management.

However, a fixed percentage in SLRinvestment by the banks in RBI reduces their lendable funds available towards the individuals and businesses world. This certainly has growth limiting effect via containing investment.In the present Indian development context which aims at rapid growth for achieving $5 trillion GDP by this decade end and in which the private sector is supposed to play a bigger role, it is suggested for enhancing lendable funds available with the banks for more productive lending by reducing SLR (a lower yield investment).

As per the provisionslaid down in the Banking Regulation/Companies Act 1949, the investment in SLR by the banks varies from a minimum 0 to a maximum of 40 percent. History reveals that before liberalization banks used to invest a very high percentage (38.5 %in 1991) in SLR which has been gradually reduced in the post-liberalization period to 18 % (at present) following changes in Government’s policy favouring banks more autonomy and freedom in their portfolio management. The post-liberalization strategy has been to free up the banks resources for the market-basedlending rather than locking funds with government securities.

As already stated, the SLR of the banks has remained sticky at 18 percent since April, 2020 while other options like reporate, reverse reporates are frequently altered to stabilize financial system. Here the fundamental question is: can SLR be abolished or be zero percent? In this context, we delve briefly into both positive and negative aspects of SLR becoming zero.

Theoretically SLRcan be zero but in practice it is highly unlikely. No doubt SLR is a low-return investment for the banks but it is a tool in the hands of RBI to influence credit expansion and liquidity in the economy. In the present world with high volatility in trade and transactions a positive rate above zero will enable the RBI to maintain control over the banking system. As reported, in recent years the monetary policy has played a very supportive role in containing inflation and enhancing growth while fiscal policy aiming at reducing deficit has limited room to support growth.

As regards the impact of higher rate of SLR it may be pointed out that other than being a regulatory mechanism to maintain financial stability, it has all through remained a source finance to the government expenditure including the government debts. In the present political scenario, with the governmentsboth central and states increasingly spending in distributing freebies and subsidized projects and rising debt-GDP ratiothe obligation of the banks to support such spending is questioned.

In the present-day competitive world let the banks be given free hand in investing their resourcesin high yielding projects guided by commercial considerations. Let them manage their portfolio balancing risk and return by allocating investment across different classes. Higher SLR means lower profitability and vice versa.This suggests for looking into phased reduction of SLR to the lowest rate.

• Formerly, Professor of Economics, Utkal University and Director NKC Centre for Development Studies, Bhubaneswar