Statutory liquidity ratio

The proportion of deposits an Indian bank must hold in government securities, gold or cash.

Unlike the cash requirement, these assets earn a return, so the cost to the bank is the difference between the government yield and what it could have earned lending.

The requirement creates captive demand for government borrowing, which is part of why the Indian government has been able to fund large deficits domestically.

It is a monetary tool and a fiscal one at the same time.