By jahanzaib 
Understanding Financial Regulations: Exploring the Current SLR Rate
The Reserve Bank of India takes several different steps to ensure the stability and smooth working of the Indian banking system. One of the things that the RBI does in this regard is decide the Statutory Liquidity Ratio. This article discusses in detail the concept of SLR and the impact that SLR has over home loans.
What is the Statutory Liquidity Ratio or SLR?
The RBI makes it legally mandatory for all commercial banks to set aside a portion of their time and demand deposits in the form of liquid assets before they start lending money to borrowers. These time and demand deposits can be stored in the form of gold, cash, government-approved securities, such as treasury bills and government-authorized securities released under various government-approved market borrowing programmes. The term statutory affirms that setting aside these securities is legally mandatory and not doing so can lead to a bank attracting massive penalties. All scheduled commercial and non-commercial banks, state and central co-operative banks and urban co-operative banks must maintain the SLR set by the Reserve Bank of India.
While we are on this topic, let us clarify the difference between SLR and CRR as loan borrowers often get confused between the two. While SLR refers to the percentage of a bank’s time and demand deposits that it must maintain in the form of liquid assets, CRR refers to a bank’s overall deposits that it must maintain in the form of cash reserves. Maintaining SLR and CRR is important and legal. Not doing so can lead to banks attracting a heavy penalty.
So, how does the concept of statutory liquidity ratio work? The Reserve Bank of India decides the SLR to be maintained by all banks and financial institutions. The maximum that the SLR rate can go up to is 40% whereas the minimum SLR Rate can be 0%. The current SLR rate is 18%. Once the RBI decides the SLR, all banks must maintain it and report to the RBI their SLR status every Friday.
Now that we understand the concept of statutory liquidity ratio or SLR, let us look at how the SLR ratio affects the latest home loan interest rates.
The Impact of SLR Rate Changes on Home Loan Interest Rates
Changes in SLR have a direct impact on home loan interest rates. When the Reserve Bank of India increases the SLR Rate, banks must store more money in the form of liquid assets. Therefore, banks have less money to lend when the SLR rate is high. Therefore, banks charge a high rate of interest from borrowers. In simple words, when the SLR rate is high, the latest home loan interest rates increase too. On the other hand, when the SLR rate is low and banks have more money to lend, they charge a lower rate of interest on loans and therefore, all loans including home loans become cheaper.
Things to Keep in Mind if You Are Planning to Avail Yourself of a Home Loan
If you are planning to apply for housing finance in the near future, keep track of not just the current SLR rate but also the Repo Rate and other external factors that affect the latest home loan interest rates. This will allow you to figure out the most ideal time for applying for a home loan. Further, all loan applicants must read about the home loan balance transfer. The home loan balance transfer facility is a facility that allows home loan borrowers to transfer their remaining home loan balance to another lender willing to refinance the loan on more suitable terms and conditions, such as lower home loan interest rates and longer repayment tenor. The home loan transfer facility can help borrowers significantly and even make their lives easier, especially if they are finding it hard to accommodate their EMIs. However, not all home loan borrowers qualify for a balance transfer. So, before applying for this facility, read about the eligibility for home loan transfers. Further, use a home loan balance transfer calculator to check if a home loan balance transfer would indeed be the right choice for you.