What is CRR & SLR?

What is Cash Reserve Ratio (CRR)?

Every commercial bank (SBI, ICICI, HDFC, etc. in India) has to keep a percentage of its total deposit with central bank (Reserve Bank of India ) as a reserve which is known as Cash Reserve Ratio. If the central bank wants to increase the credit to commercial banks, CRR is reduced and if central bank wants to decrease the flow of credit, it increases the credit.

In other words, CRR is the minimum percentage of a bank’s total deposits which are to be kept with the central bank. At present, CRR is 4.75%.

What is Statutory Liquidity Ratio (SLR)?

Every commercial bank has to maintain a certain percentage of its assets in the form of cash or other liquid assets, called Statutory Liquidity Ratio. This is also fixed by central bank. This is done so as to control the liquidity of money in the market because increase in the liquidity causes increase in inflation. When the flow of credit is to be increased, SLR is reduced and it is increased if flow of credit is to be decreased. At present, SLR is 24%.