The RBI has announced a reduction in the share of government securities that banks have to mandatorily hold in their books in four equal phases starting from next fiscal year. The RBI has said that the bank’s investment in government securities also known as statutory liquidity ratio (SLR) would be lowered to 20.5% by January 2017. As of now, banks are mandated to invest 21.5% of their deposits in government securities.

According to the new time table SLR would be reduced to by 25 basis points to 21.25% as on April 2, 2016. It would fall to 21% by July 9, 2016. It would further be lowered from October 1, 2016 to 20.75%. The RBI said that the last round of reduction in the SLR would be one 20.50% by January 1, 2017.

As of now, most banks have excess SLR in their books than mandated by RBI. As per the RBI data, the banking system has 29.33% of SLR as on October 30, 2015. The excess investment in government securities is primarily due to absence of credit demand.

Statutory liquidity ratio (SLR) is the Indian government term for reserve requirement that the commercial banks in India require to maintain in the form of gold, government approved securities before providing credit to the customers.