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    Lecture 7 - CRR and SLR

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    Kishore Ronz
    Crr and slr

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    Lecture 7 - CRR and SLR

    Uploaded by

    Kishore Ronz
    5 views10 pages
    Crr and slr

    Original Title

    LECTURE 7 _ CRR AND SLR _ PPT

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    Crr and slr

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    5 views10 pages

    Lecture 7 - CRR and SLR

    Uploaded by

    Kishore Ronz
    Crr and slr

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 10

    SRI KRISHNA ARTS & SCIENCE COLLEGE

    [An Autonomous Institution]

    LEGAL AND REGULATORY ASPECTS OF BANKING


    III B.COM BI
    Unit: I
    Lecture - 7
    Topic: Maintenance of CRR and SLR

    Facilitator
    Dr.S.Sangeetha
    Associate Professor,
    Commerce BPS & BI
    SKASC 1
    CONTENTS

    • Maintenance of CRR and SLR

    SKASC

    2
    CASH RESERVE RATIO (CRR)

    • The Cash Reserve Ratio in India is decided by RBI's Monetary Policy Committee in the
    periodic Monetary and Credit Policy.

    • The Reserve Bank of India takes stock of the CRR in every monetary policy review, which,
    at present, is conducted every six weeks.

    • The lower the CRR, the higher liquidity with the banks, which in turn goes into investment
    and lending and vice-versa.

    • Higher CRR can also negatively impact the economy as lesser availability of loanable
    funds, in turn, slows down investment. It thereby reduces the supply of money in the

    economy.

    SKASC 3
    CRR formula
    • If the current CRR rate is 4%, a bank is required to store 4% of
    the total NDTL or the Net Demand and Time Liabilities in the
    form of cash.

    • The bank cannot use this money for investment or lending.

    SKASC 4
    OBJECTIVES OF CASH RESERVE RATIO

    There are two primary purposes of the Cash Reserve Ratio:

    • Since a part of the bank’s deposits is with the Reserve Bank of India, it ensures the
    security of the amount.

    • It makes it readily available when customers want their deposits back.

    • CRR helps in keeping inflation under control.

    • At the time of high inflation in the economy, RBI increases the CRR, so that banks
    need to keep more money in reserves so that they have less money to lend
    further.

    SKASC 5
    STATUTORY LIQUIDITY RATIO
    • Statutory Liquidity Ratio (SLR) is the govt term for the reserve demand that commercial banks
    are required to maintain in the form of cash, gold reserves, Reserve Bank of India (RBI)
    approved securities before giving credit to the customers.
    It is directed under Section 24 of the Banking Regulation Act, 1949.
    • The SLR is determined by the RBI. It is usually used to control inflation and fuel growth, by
    increasing and decreasing the money supply.
    • It controls the credit growth in India.
    • The maximum limit of SLR is 40% and the minimum limit of SLR is 0 In India, the RBI always
    decides the percentage of SLR.
    • If the bank fails to control the required level of the statutory liquidity ratio, then it becomes
    responsible to pay penalty to Reserve Bank of India (RBI).
    • The current SLR rate in India is 18.25%.

    SKASC 6
    SPECIFIED ASSETS FOR SLR
    • Cash or Gold valued at a price not exceeding the current market price, or
    • Investment in the following instruments which are referred to as “Statutory Liquidity Ratio
    (SLR) securities”:
    • Dated securities issued up to May 06, 2011;
    • Treasury Bills of the Government of India;
    • Dated securities of the Government of India issued from time to time under the market
    borrowing program and the Market Stabilization Scheme;
    • State Development Loans (SDLs) of the State Governments issued from time to time under
    the market borrowing program; and any other instrument as may be notified by the Reserve
    Bank of India.
    • SLR Rate = (liquid assets / (demand + time liabilities)) × 100%

    SKASC 7
    The components of the Statutory Liquidity Ratio
    There are three major components of SLR:
    Liquid Assets
    These are assets one can easily convert into cash – gold, govt-approved securities,
    cash reserves, treasury bills, and government bonds.
    Net Demand Liabilities
    It is like your Current and Saving Bank accounts from which you can withdraw your
    money at any time.
    Time Liabilities
    It is like your Fixed Deposit Bank Accounts where you cannot immediately withdraw
    your money but have to wait for a certain period.

    SKASC 8
    MAIN OBJECTIVES OF SLR

    • To control the money supply in the economy.


    • Through SLR, the Central Bank forces the commercial banks to
    invest in government securities.
    • To support the RBI to assure the safety of a commercial bank.
    • To control the expansion of Bank Credits.
    • RBI can increase or decrease bank credit expansion by
    changing the SLR rates.

    SKASC 9
    THANK YOU

    SKASC 10

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