CRR and SLR- Cash Reserve Ratio (CRR): CRR is the percentage of total deposits, which a commercial bank has to keep as reserves in the form of cash with the RBI. The banks are not allowed to use that money, kept with RBI, for economic and commercial purposes. It is a tool used by the apex bank to regulate the liquidity in the economy and control the flow of money in the country.
As mentioned in the provisions of the Reserve Bank of India Act, 1934, Section 42(1), every scheduled bank is required to maintain an average daily balance with RBI. The amount shall not be less than 3% of the total of the demand and time liabilities in India. This amount that is to be maintained by the bank is called ‘Cash Reserve Ratio’ (CRR).
The Reserve Bank of India may increase the CRR to such a higher percentage as may be specified in the notification provided that the CRR shall not be more than 15% of the total demand and time liabilities.
Statutory Liquidity Ratio (SLR): Apart from CRR, every bank is required to maintain in India at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as the Statutory Liquidity Ratio (SLR).
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