Which of the following terms indicates a mechanism used by commercial banks for providing credit to the government ?

Statutory Liquidity Ratio (SLR) is the requirement that scheduled commercial banks maintain a specified portion of their net demand and time liabilities in safe and liquid assets such as cash, gold and government (approved) securities. By mandating banks to hold a portion of deposits in government securities, SLR effectively channels bank funds into government debt—i.e., it is a mechanism by which banks provide credit to the government through purchase of government securities [1]. Textbook descriptions of SLR also emphasise that this statutory reserve limits credit creation by banks while ensuring banks invest in government instruments [2]. Hence SLR (option 4) is the correct choice.

Sources

1. [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > INCREMENTAL CASH RESERVE RATIO > p. 168
2. [2] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > The following are the major instruments/tools that RBI uses for conducting its monetary policy: > p. 63