CRR & SLR

1. Cash Reserve Ratio(CRR) & Statutory Liquidity Ratio(SLR) Presented By Bhavana B

2. Cash reserve Ratio (CRR) is the amount of Cash that the banks have to keep with RBI. This Ratio is basically to drain out the excessive money from the banks. Limit: T he minimum value of CRR was statutorily fixed at 3% and the maximum was fixed at 15 %. Present CRR : CRR Cash Reserve Ratio (CRR) 4.00%(w.e.f. 09/02/2013)-announced on 29/01/2013 Decreased from 4.25% which was continuing since 30/10/2012

3. SLR(statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, gold or govt. approved securities (Bonds). Limit: T he minimum value of SLR was fixed at 20% and the maximum was fixed at 40%. Present SLR : SLR Statutory Liquidity Ratio (SLR) 23%(w.e.f. 11/08/2012) (announced on 31/07/2012) Decreased from 24% which was continuing since 18/12/2010

4. Continued… Rate of CRR & SLR is fixed by RBI and it is changed from time to time , in the light of economic conditions including inflation. This amount is calculated by banks with reference to their net demand and time liabilities (the major part being in the form of deposits). This balances is maintained as an average fortnightly balance, that may fluctuate on daily basis.

5. Continued … -At any time, the minimum balances must not go below the percentage fixed by RBI as percentage of the average fortnightly balance. In case of Default in maintaining CRR & SLR, there is provision for interest payment by banks to RBI. If RBI decides to increase the percentage of CRR , then available amount with the banks come down. RBI does not pay any interest to banks for the balances maintained as CRR . But banks pay interest on the deposit used for CRR.

6. Example(CRR): Amount of net demand & time liabilities = 10000 Cr Rate of CRR(assumed) = 4% Average cash balance to be maintained = 400 Cr Impact of change in CRR: If CRR is Reduced, the cash balances maintained with RBI would decline(and liquidity with banks increases ). Corresponding amount is Increases lending capacity of banks The increased lending increases their interest income and leads to more profits

7. Example (SLR): Amount of net demand & time liabilities = 10000 Cr Rate of SLR(assumed) = 23% Average cash balance to be maintained = 2300 Cr Impact of change in SLR : - If SLR is reduced, it changes the fund deployment pattern. -The funds freed from such investments, can be invested by banks for lending purpose, to earn better returns. - The returns on such securities are generally lower than the interest paid on loans, although the risk is negligible in investing in govt. securities

8. How CRR and SLR maintained

9. Thank you..