Question

Distinguish between CRR and SLR.

Hint:

Remember: CRR = cash with RBI; SLR = liquid assets kept with the bank.

Answer 1

CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio) are both monetary tools used by the Reserve Bank of India to control liquidity and maintain stability in the banking system.
1) Definition:
CRR is the percentage of total deposits that banks must keep as cash reserves with the RBI.
SLR is the percentage of total deposits that banks must maintain in the form of liquid assets like cash, gold, or government securities within the bank itself.
2) Purpose:
CRR helps the RBI control the money supply and ensure that banks do not run short of funds during sudden demands.
SLR ensures the bank’s solvency by requiring them to maintain a minimum amount of liquid assets to meet obligations.
Together, both ratios strengthen the banking system by maintaining adequate liquidity and promoting discipline in lending.