What are SLR and CRR in Banking?

Both CRR and SLR in banking are mandatory and are tools used by the RBI to regulate liquidity, as they ensure bank stability and manage economic growth and inflation. Here we will explore more about SLR and CRR in banking.

What is SLR?

SLR or Statutory Liquidity Ratio is the percentage of a bank's total deposits that must be invested in government-approved securities and government bonds. It ensures to maintenance of its solvency. And the bank has enough liquid assets to meet withdrawal demand.

Example of SLR

If a bank has total deposits of INR 100 crore and a Statutory Liquidity Ratio requirement of 18%. Then the bank maintains INR 18 crore in the form of liquid assets such as gold, cash, or government-approved securities. So these assets are held by the bank itself. It helps ensure its solvency. As they have the ability to meet withdrawal demands.

Requirement	Example amount	Form of Reserve	Held With
SLR	INR 18 Crore at 18%	Gold, Cash, or Government securities	The Bank

What is CRR?

CRR or Cash Reserve Ratio is the percentage of a bank's total deposits that must be kept with the Reserve Bank of India in the form of cash. So the banks cannot use the amount for lending or investment. It is solely for maintaining liquidity in the system. The main purpose of this is to control the money flow in the economy. This helps the Reserve Bank of India to manage inflation and liquidity.

Example of CRR

With the same INR 100 crore in deposits and the RBI, which has set the DRR at 4%, the bank must keep INR 4 crore as cash with the RBI, and this amount cannot be used for lending or investment, and it is kept solely with the central bank to regulat liquidity in the economy.

Requirement	Example amount	Form of Reserve	Held With
CRR	INR 4 Crore at 4%	Only cash	RBI

Difference Between SLR and CRR

Here are the differences between SLR and CRR:

Feature	CRR	SLR
Form	Form is only cash.	Form is Cash, gold, or government-approved securities
Purpose	They control liquidity and money supply	They ensure solvency and limit credit expansion
Kept With	With RBI	With the bank
Return	There is no interest.	The banks may earn returns on SLR assets.

Conclusion

In conclusion, CRR and SLR are tools. While CRR controls the cash flow in the system, SLR ensures the stability of the bank. So, CRR and SLR help maintain a balanced and robust financial system in India. We hope this blog on SLR and CRR in banking has been helpful to you.

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Saniya

I am a writer, and this sentence speaks louder than anything, I love to play with words because I have a passion for writing easy and good-quality content that reflects simplicity. Readers like content that is straightforward with simple language. My priority has always been to deliver content that connects with the reader.

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