What functions are done by the Statutory Liquidity Ratio?
1. It is an instrument of credit control;
2. It works as a cushion against the possibility of bank failures; and
3. It finances government deficits
Select the correct option from the codes given below:

Answer: [D] 1, 2 & 3

There are three purposes to keep SLR. These are:

  • It is an instrument of credit control
  • It works as a cushion against the possibility of bank failures
  • It is a conduit for financing government deficits.

We note here that SLR is not very frequently changed; so as an instrument of Credit Control; its role is limited. However, most important function SLR is doing in current times is to “finance the government deficit”. As far as its function as a cushion against bank failures is concerned, it is practically meaningless because weak commercial banks are not allowed to fail by the Government/RBI which is guided by the too-big-to-fail doctrine while resolving bank failures.

This question is a part of GKToday's Integrated IAS General Studies Module