What is CRR (Cash Reserve Ratio) & SLR (Statutory Liquidity Ratio)

What is Cash Reserve Ratio (CRR):

Cash Reserve Ratio (CRR) is the most frequently used term specially in banking sector in India.  It is normally the portion of deposits in the form of cash that the banks have to maintain with the Central Bank (i.e. The Reserve Bank of India). In other words, Cash Reserve Ratio (CRR) is the regulation of Central Bank which ensures, every bank must hold the minimum reserve to meet with the monetary stability in the country. That is why, it is also known as the Reserve Requirement. The Reserve Bank of India (RBI) generally, uses CRR as tool to control liquidity in the banking system. With increase in CRR, the RBI controls the excess lendable amount available with banks, thereby controlling Inflation.

Statutory Liquidity Ratio (SLR):

Statutory Liquidity Ratio (SLR) is ratio of liquid assets in the form of cash, gold and approved securities to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). The bankers use this term to indicate the minimum percentage of deposits that the banks have to maintain in the form of liquid assets. With increase in SLR, the RBI can restrict the bank’s leverage position to pump more money into the economy. Unlike Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) is maintained by the Banks themselves. Presently, the SLR is at 24 per cent (wef 18 Dec 2010), while it can be increased to its maximum upto 40 per cent.

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