Question

When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points, which of the following is likely to happen?

• A. India's GDP growth rate increases drastically.
• B. Foreign Institutional Investor may bring more capital into our country.
• C. Scheduled Commercial Banks may cut their lending rates.
• D. It may drastically reduce the liquidity to the banking system.

Answer 1

The correct option is C Scheduled Commercial Banks may cut their lending rates.

SLR is a mechanism used by RBI to regulate liquidity of assets and requires the banks to invest a certain portion of their deposits in RBI approved securities or gold. When SLR is reduced, banks have more money to lend which may lead to decrease in lending rates.