CRR and SLR – Cash Reserve Ratio Vs Statutory Liquidity Ratio

CRR and SLR | Cash Reserve Ratio Vs Statutory Liquidity Ratio| What is the SLR and CRR?| Finance | Management Notes

What is the meaning of cash reserve ratio?

Cash Reserve Ratio(CRR) refers to a certain percentage of total deposits the commercial banks are required to maintain in the form of cash reserve with the central bank.

Why cash reserve ratio is maintained?

The objective of maintaining the cash reserve is to prevent the shortage of funds in meeting the demand by the depositor. For example, The amount of reserve to be maintained depends on the bank’s experience regarding the cash demand by the depositors.

What mean by SLR?

Statutory Liquidity Ratio (SLR) refers to the proportion of deposits the commercial bank is required to maintain with them in the form of liquid assets(government bonds, gold, cash, and other securities) in addition to the cash reserve ratio.

Why SLR is maintained?

The statutory liquidity ratio is determined and maintained by the central bank to control the bank credit, ensure the solvency of commercial banks and compel banks to invest in the government securities. For example, by changing the SLR, the flow of bank credit in the economy can be increased or decreased.Cash Reserve Ratio Vs Statutory Liquidity Ratio can be described as below:

Difference between CRR and SLR 

S.No.Cash Reserve Ratio (CRR)Statutory Liquidity Ratio (SLR)
1.Cash Reserve Ratio(CRR) refers to a certain percentage of total deposits the commercial banks are required to maintain in the form of cash reserve with the central bank.Statutory Liquidity Ratio (SLR) refers to the proportion of deposits the commercial bank is required to maintain with them in the form of liquid assets(government bonds, gold, cash, and other securities) in addition to the cash reserve ratio.
2.CRR is maintained in the form of cash.SLR is maintained in the form of liquid assets like gold, cash, government bond, and other securities.
3.CRR limits the ability of the banks to pump more money into the economy which as a result regulates the flow of money in the economy.But, SLR helps to limit the expansion of bank credit, for ensuring the solvency of banks.
4.CRR controls liquidity in the economy.SLR regulates credit growth in the country.
5.Banks don’t earn any returns from the money parked in the form of CRR.Banks can earn returns from SLR.

Similarly Other Related Posts:

1. Assets Turnover Ratio

2. Liquidity Ratios

3. Fixed Assets Turnover Ratio

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