What is CRR vs SLR?

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are monetary tools the central bank uses to regulate liquidity. CRR requires banks to keep a portion of deposits as cash with the Central Bank (no interest earned), while SLR requires banks to maintain a percentage of deposits in liquid assets (cash, gold, or government securities) with themselves, earning interest.

What is the difference between SLR and CRR?

CRR is a reserve maintained by banks with the RBI. It is a percentage of the banks' deposits maintained in cash form. SLR is an obligatory reserve that commercial banks must maintain themselves. It is a percentage of commercial banks' net demand and time liabilities, maintained as approved securities.

What is CRR and SLR right now?

While CRR involves keeping a portion of deposits as cash with the RBI, SLR requires banks to maintain a percentage of deposits in government securities, gold, or cash. In short, SLR vs CRR represents two key levers that shape financial and lending operations.

What is CRR in simple terms?

The Cash Reserve Ratio (CRR) is a key monetary policy tool used by the Reserve Bank of India (RBI) to regulate liquidity and ensure financial stability. It refers to the portion of a bank's total deposits that must be maintained as cash with the RBI, without earning any interest.

When CRR and SLR increases, it leads to?

When the central bank increases the SLR, it reduces the amount of funds available for lending, similar to CRR. This can impact interest rates and credit availability in the economy. Both CRR and SLR play indispensable roles in maintaining liquidity, controlling inflation, and managing monetary policy.

Liquidity Coverage Ratio (LCR): The Firewall Against Panic

What happens if a bank fails CRR?

If a failed bank is not sold to a healthy bank and the FDIC pays insured depositors directly, outstanding transactions, checks and automatic withdrawals will not clear. Thus, depositors must find another way to pay their creditors until they receive their insured deposits and open a new bank account.

Do CRR and SLR earn interest?

Banks do not earn any interest from the RBI in case of the cash parked with RBI under CRR requirements. Banks earn interest. This is because, under SLR requirements, banks are supposed to invest in liquid assets like central and state government securities/bonds. These bonds earn banks some interest.

What happens if CRR is low?

A higher CRR reduces liquidity in the banking system to control inflation, while a lower CRR increases liquidity, improves credit growth and boosts the economy.

How to calculate CRR and SLR with example?

CRR Calculation: The CRR is a specific percentage of a commercial bank's total deposits, as decided by the central bank. For instance, if the CRR rate is 4% and a bank has a total deposit of INR 1,00,000, it will have to set aside INR 4,000 (4% of INR 1,00,000) as reserves.

What are the benefits of CRR?

Advantages Of CRR

CRR helps in spreading money circulation in the economy to manage the overall liquidity. CRR rate is fixed as per the money supply in the financial market. When there is an increase in monetary supply, the RBI instantly increases the CRR to remove the excess funds.

Why is SLR 18%?

The SLR is set by the RBI and it is one of the control mechanisms to regulate money flow in the economy. As of May 2025, the SLR in India stands at 18% - meaning every bank must maintain 18% NDTL (Net Demand and Time Liabilities) in liquid form.

What if CRR is high?

A higher CRR means that a bigger portion of bank deposits must be kept with the RBI, resulting in reduced liquidity in the market. This reduction can slow down economic activity as banks have fewer funds to lend for business expansion, consumer loans, and other investments.

Who decides CRR and SLR?

Ans. The Reserve Bank of India (RBI) determines and revises the SLR based on prevailing economic conditions. Ans. CRR is maintained as cash with RBI, while SLR is maintained by the banks themselves in cash, gold, or approved securities.

What is cash ratio in simple words?

The Cash Ratio is defined as a company's Cash & Cash-Equivalents / Current Liabilities, and it captures a company's ability to repay its short-term obligations using only its Cash, without selling assets, borrowing more, or collecting owed customer payments.

What are the 4 tools of monetary policy?

Central banks have four main monetary policy tools: the reserve requirement, open market operations, the discount rate, and interest on reserves. 1 Most central banks also have a lot more tools at their disposal. These additional tools can include forward guidance, inflation targeting, and special lending programs.

What is SLR with example?

This percentage is called the Statutory Liquidity Ratio (SLR). In our example, if the RBI mandates the banks to maintain an SLR of 20%, then the bank will keep Rs 2 Lakh in liquid assets and will be able to loan out only the remaining Rs 8 Lakh.

What is CRR in simple words?

The Cash Reserve Ratio (CRR) is the percentage of total deposits a bank must have in cash to operate risk-free. The Reserve Bank of India decides the amount and is kept with them for financial security. The bank cannot use this amount for lending and investment purposes and does not get any interest from the RBI.

How does SLR work?

SLR is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. Thus, we can say that it is ratio of cash and some other approved liability (deposits). It regulates the credit growth in India.

Is a high or low CRR better?

Lower CRR rates increase the funds that banks can lend. At reduced interest rates, businesses can borrow, invest, and expand their operations. Higher CRRs, on the other hand, can slow down business growth.

What does a high CRR mean?

A high CRR means that customers are satisfied with the company's products or services and are likely to continue doing business with the company in the future. A low CRR, on the other hand, indicates that customers are not satisfied with the company and are likely to take their business elsewhere.

Which banks need not maintain CRR?

Cash Reserve Ratio (CRR) is the amount of funds that all Scheduled Commercial Banks (SCB) excluding Regional Rural Banks (RRB) are required to maintain without any floor or ceiling rate with RBI with reference to their total net Demand and Time Liabilities (DTL) to ensure the liquidity and solvency of Banks (Section 42 ...

What is the 60/40 rule of RBI?

Risk weights for undrawn portion of cash credit limits

The 40 percent loan component will be revised to 60 percent, with effect from July 1, 2019.

Do payment banks maintain CRR and SLR?

 Since payments banks will be required to maintain deposits to be compulsorily backed by 100% with CRR and SLR, the maintenance of Capital Adequacy Ratio of 15% of the risk weighted assets on a continuous basis and the leverage ratio of at least 5%, a fixed amount of Rs.

Why is cash reserve ratio important?

It mandates the percentage of deposits banks must retain rather than loan out or invest. In times of economic growth, a lower reserve ratio facilitates increased lending, stimulating the economy by putting more money in circulation.