Cash Reserve Ratio(CRR) and Statutory Liquidity Ratio (SLR) - Bank Term Explained
Read all about the
Cash reserve ratio and Statutory Liquidity Ratio and how reserve bank of India uses the CRR and SLR as a tool to control the money floating in the market.
What
is CRR Rate?
Cash
reserve ratio is explained as the minimum fund a bank is needed to deposit with
the RBI.
If CRR
rate increase
If the
RBI increases the CRR rate, then it means that the amount of money with the
banks will come down as banks have to deposit more money with the reserve bank.
So RBI
is using CRR as monetary tool to regulate the banking sector. If there is
excess money in the system, reserve bank will increase the CRR rate which will
need the banks to deposit more money with the reserve bank.
If CRR
rate decreases
This is
an indication that there si very less money in the market and hence RBI has
reduced the CRR rate. So that banks need not deposit more money with the
reserve bank.
What
is SLR Rate?
SLR
stands for Statutory
Liquidity Ratio. Banks are supposed to keep a certain amount of money as
reserve before providing credit to the customers. The reserve money can be in
the form of cash, gold or government approved securities. This amount has to be
maintained by the bank at all times.
SLR rate is
determined by the percentage of total demand and net liabilities.RBI uses this
tool to control the flow of money a s credit from the bank to the customers. So
SLR rate is another monetary too used by the RBI to regulate the market.
If you have any doubts regarding this topic please do comment below
Tags: CRR Rate, CRR Rate explain, explain SLR Rate, SLR Rate, what is CRR Rate, what is SLR Rate
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