Understanding SLR and CRR in Banking

Key Terms

• CRR (Cash Reserve Ratio):

  • Reserve banks must maintain with the Reserve Bank of India (RBI).
  • Held in cash.
  • Percentage of the bank's total deposits.
  • Helps manage cash flow in the economy.

• SLR (Statutory Liquidity Ratio):

  • Mandatory reserve for commercial institutions.
  • Portion of the net demand and time obligations.
  • Held in authorized securities like government-approved securities.
  • Ensures the solvency of banks.

CRR (Cash Reserve Ratio)

• Compulsory reserve maintained by banks with the RBI.
• Percentage of their net demand and time liabilities.
• Maintained in the form of cash balances with the RBI.
• Cannot be used for economic or commercial purposes.
• Used by RBI to maintain cash flow and liquidity stability.

SLR (Statutory Liquidity Ratio)

• Obligatory reserve maintained by commercial banks.
• Held in approved securities as per a percentage of their net demand and time liabilities.
• Restricts the credit facility offered by banks.
• Banks often hold more than the required SLR for stability.
• Helps banks meet depositors' demands.

Differences between CRR and SLR

• Meaning:

  • CRR: Percentage of money kept with the RBI.
  • SLR: Proportion of liquid assets.

• Form:

  • CRR: Cash.
  • SLR: Cash, gold, and government-approved securities.

• Uses:

  • CRR: Regulates money flow in the economy.
  • SLR: Ensures bank solvency.

• Reserved With:

  • CRR: Reserved with the RBI.
  • SLR: Reserved with commercial banks.

• National Impact:

  • CRR: Regulates cash liquidity in the country.
  • SLR: Maintains the country's credit growth.

Final Note

• CRR and SLR are crucial for maintaining cash flow and liquidity.
• Impact loan markets significantly.
• Rates fluctuate with the economic climate.
• For updates, contact your bank or visit the RBI website for current rates.

Additional Information

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Disclaimer

• The article is for informational purposes only.
• Contact your income tax advisor or CA for expert advice.