Question

difference between cash reserve ratio and liquidity reserve ratio

Answer 1

• Both CRR and SLR are instruments in the hands of RBI to regulate money supply in the hands of banks that they can pump in economy

• CRR is cash reserve ratio that stipulates the percentage of money or cash that banks are required to keep with RBI

• SLR is statutory liquidity ratio and specifies the percentage of money a bank has to maintain in the form of cash, gold, and other approved securities

• CRR controls liquidity in economy while SLR regulates credit growth in the country

• While banks themselves maintain SLR in liquid form, CRR is with RBI maintained as cash.

Answer 2

CRR stands for Cash Reserve Ratio, and specifies in percentage the money commercial banks need to keep with themselves in the form of cash. In reality, banks deposit this amount with RBI instead of keeping this money with them. This ratio is calculated by RBI.

SLR stands for Statutory Liquidity Ratio and is prescribed by RBI as a ratio of cash deposits that banks have to maintain in the form of gold, cash, and other securities approved by RBI. This is done by RBI to regulate growth of credit in India. These are un-encumbered securities that a bank has to purchase with its cash reserves.