What Is SLR And CRR?

What is the purpose of CRR and SLR?

The SLR (20.75 per cent of NDTL) requires banks to invest in safe and quickly saleable assets such as government securities.

While ensuring some liquid money against deposits is the primary purpose of CRR, its secondary purpose is to allow the RBI to control liquidity and rates in the economy..

What is the difference between repo rate and bank rate?

Bank Rate and REPO rates are almost similar. The central bank(RBI for India) lends money to a private bank for which the private bank needs to pay the interest rate. The only difference is that the REPO rate is used to lend money for the short term while the bank rate for the long term.

Is CRR part of SLR?

Cash reserve Ratio (CRR) is a percentage of money to be kept by all the banks with Reserve Bank of India in the form of cash and hence it regulates the flow of money in the economy while Statutory liquidity ratio (SLR) is time and demand liabilities of the bank which are to be kept with the bank itself to maintain …

What is CRR rate?

What Is Cash Reserve Ratio (CRR): Cash reserve ratio is the percentage of bank deposits banks need to keep with the RBI. CRR is an instrument the RBI uses to control the liquidity in the system. Currently, the CRR is 4 per cent, though the range of permissible CRR is between 3 and 15 per cent.

What is MSF rate?

MSF rate is the rate at which banks borrow funds overnight from the Reserve Bank of India (RBI) against approved government securities. … Under the Marginal Standing Facility (MSF), currently banks avail funds from the RBI on overnight basis against their excess statutory liquidity ratio (SLR) holdings.

What is the purpose of SLR?

1) One of the main objectives is to prevent commercial banks from liquidating their liquid assets when the RBI raises the CRR. 2) SLR is used by the RBI to control credit flow in the banks. 3) In a way, SLR also makes commercial banks invest in government securities.

Is LRR sum of CRR and SLR?

So, SLR is defined as the minimum percentage of assets to be maintained in the form of either fixed or liquid assets with RBI. The flow of credit is reduced by increasing this liquidity ratio and vice-versa. … So, LRR is not equal to CRR and SLR.

What is SLR and CRR rate?

CRR is the percentage of money, which a bank has to keep with RBI in the form of cash. On the other hand, SLR is the proportion of liquid assets to time and demand liabilities. … CRR regulates the flow of money in the economy whereas SLR ensures the solvency of the banks.

What happens when CRR is increased?

When RBI increases the CRR, less funds are available with banks as they have to keep larger protions of their cash in hand with RBI. … Thus hike in CRR leads to increase of interest rates on Loans provided by the Banks. Reduction in CRR sucks money out of the system causing to decrease in money supply.

What is difference between LAF and MSF?

Marginal standing facility (MSF), under which banks could borrow funds from RBI overnight, which is 1% above the liquidity adjustment facility-repo rate against pledging government securities. … Liquidity adjustment facility (LAF) is a monetary policy tool which allows banks to borrow money through repurchase agreements.

What happens if SLR increases?

Impact of SLR If the SLR increases, it restricts the bank’s lending capacity and helps in controlling the inflation by soaking the liquidity from the market. Consequently, banks will have less money available to lend, and they will charge higher interest rates on loans to keep up with their profit margin.

How is Bank SLR calculated?

The Formula for SLR Rate: The formula for calculating SLR ratio is = (liquid assets / (demand + time liabilities)) * 100%.

Who keeps SLR?

1. ASSETS ELIGIBLE UNDER SLR. The eligible assets for SLR mainly include cash, gold and approved securities by the RBI. Most banks keep the SLR in the form of government approved securities specifically – central government bonds and treasury bills as they give a reasonable return.

What is SLR example?

This minimum percentage is called Statutory Liquidity Ratio. Example: If you deposit Rs. 100/- in bank, CRR being 9% and SLR being 11%, then bank can use 100-9-11= Rs.

How is MSF calculated?

Generally, the MSF rate is 0.25% or 25 basis points more than the repo rate. Using this facility, all the scheduled banks under RBI can avail money in emergency situations up to 1% of their NDTL (net demand and time liabilities) or SLR securities.

What is meant by LAF?

A liquidity adjustment facility (LAF) is a tool used in monetary policy, primarily by the Reserve Bank of India (RBI) that allows banks to borrow money through repurchase agreements (repos) or to make loans to the RBI through reverse repo agreements.

What is SLR in banking?

Statutory liquidity ratioIn India, the Statutory liquidity ratio (SLR) is the Government term for the reserve requirement that commercial banks are required to maintain in the form of 1. cash, 2. gold reserves,3.

Which banks maintain CRR and SLR?

The Central Bank controls the liquidity in the Banking system with CRR. In the case of SLR, the securities are kept with the banks themselves, which they need to maintain in the form of liquid assets. In CRR, the cash reserve is maintained by the banks with the Reserve Bank of India.

What is bank rate and repo rate?

Simply put, repo rate is the rate at which the RBI lends to commercial banks by purchasing securities while bank rate is the lending rate at which commercial banks can borrow from the RBI without providing any security.

Who decides CRR and SLR?

SLR, or statutory liquidity ratio, determines the amount of money a bank needs to invest in certain specified securities, which are predominantly securities issued by the central government and state governments. RBI fixes this limit. Unlike CRR, money invested under the SLR window earn some interests for banks.

Which banks maintain CRR?

All Scheduled Commercial Banks are at present required to maintain with Reserve Bank of India a Cash Reserve Ratio (CRR) of 5.00 per cent of the Net Demand and Time Liabilities (NDTL) (excluding liabilities subject to zero CRR prescriptions) under Section 42(1) of the Reserve Bank of India Act, 1934.