How are SLR and CRR used to control credit by RBI?

For SLR, banks are asked to keep the certain proposition of liquid assets in the form of gold and cash by RBI. Banks don’t earn returns on the money parked as CRR with RBI under CRR requirements. Banks earn returns on money parked as SLR. RBI controls the liquidity in the banking system with CRR.

What is SLR in banking sector?

Statutory Liquidity Ratio or SLR is a minimum percentage of deposits that a commercial bank has to maintain in the form of liquid cash, gold or other securities. It is basically the reserve requirement that banks are expected to keep before offering credit to customers. The SLR is fixed by the RBI.

What is SLR banking?

Statutory Liquidity Ratio popularly called SLR is the minimum percentage of deposits that the commercial bank maintains through gold, cash and other securities. However, these deposits are maintained by the banks themselves and not with the RBI or Reserve Bank of India.

What is Statutory Liquidity Ratio (SLR) and its objectives?

What is Statutory Liquidity Ratio (SLR) and Its Objectives? 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.

What is the meaning of SLR in banking?

Statutory Liquidity Ratio (SLR) is typically defined as the ratio of a bank’s liquid assets to a bank’s net demand and time liabilities (NDTL). SLR is one of the reserve ratios that has to be maintained by all banks as per the mandate of RBI. The other reserve ratio is known as the cash reserve ratio (CRR).

What is the role of SLR in monetary policy in India?

Since the SLR has a role in determining the base rate of the country, the government of India and the Reserve Bank of India work together to make sure that the SLR is balanced. The statutory liquidity ratio is regularly monitored so that banks have a higher leverage and a better influencing aspect.

How does the government use the SLR to regulate inflation?

The government uses the SLR to regulate inflation and liquidity. Increasing the SLR will control inflation in the economy while decreasing it will cause growth in the economy. Although, the SLR is a monetary policy instrument of RBI, it is important for the government to make its debt management programme successful.