what is legal reserve ratio (LRR). ?
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LRR : Legal Reserve Ratio
Refers to that legal minimum fraction of deposits which the banks are mandate to keep as cash with themselves.
Legal Reserve Ratio has two variants :
(i) Cash Reserve Ratio
(ii) Statutory Liquidity Ratio.
Cash Reserve Ratio (CRR)
It refers to cash reserves of Commercial Banks with the Central Bank as a percentage of their deposits.
Statutory Liquidity Ratio (SLR)
Refers to reserves in the form of liquid assets including -
(i) cash
(ii) gold
(iii) approved securities
with the Commercial Banks themselves, as a percentage of their total deposits.
Both CRR and SLR are fixed by the Central Bank, and both are a legal binding for the Commercial Banks.
In this sense, both CRR and SLR are legal reserve ratios
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